project appraisal document on a proposed loan of … · 2016. 7. 17. · project appraisal document...

Document ofThe World Bank

Report No. 19146-CHA

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN OF US$20.0 MILLION AND A

PROPOSED CREDIT OF SDR 36.8 MILLION (US$50 MILLION)

TO THE

PEOPLE'S REPUBLIC OF CHINA

FOR A

HIGHER EDUCATION REFORM PROJECT

April 14, 1999

Human Development Sector UnitEast Asia and Pacific Regional Office

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CURRENCY EQUIVALENTS(Exchange Rate Effective October 1998)

Currency Unit = Renminbi (Y)Y i.00 = US$0.12

US$1 = Y8.30

FISCAL YEARJanuarv A - December 31

ABBREVIATIONS AND ACRONYMS

AusAID Australian Agency for International DevelopmentCAS Country Assistance StrategyCERNET China Education and Research NetCIDA Canadian International Development AgencyCOSU Central Operations Services UnitDO Development ObjectiveEASHD East Asia Sector Unit, Human Development (World Bank)EU European UnionFILO Foreign Investment Loan OfficeFILO/MOE Foreign Investment Loan Office of Ministry of EducationGDP Gross Domestic ProductGOC Government of ChinaHEAP Higher Education Advisory PanelH DNED Human Development Network, Education Sector (World Bank)IBRD International Bank for Reconstruction and DevelopmentICB International Competitive BiddingICR Implementation Completion ReportIDA International Development AgencyIDF Institutional Development FundIP Implementation ProgressLCB Local Competitive BiddingLCHSD Latin America & Caribbean Region, Human Sector Development (World Bank)LCC3C Latin American and Caribbean Countries, Department 3 (World Bank)MBDs Model Bidding DocumentsMEIAO Mechanical and Electrical Equipment (State Import and Export Office for)MIS Management Information SystemMOE Ministry of EducationMOF Ministry of FinanceMTR Mid-term ReviewNCB National Competitive BiddingNGOs Non-governmental OrganizationsOP/BP Operations Policy/Bank PolicyPCR Project Completion ReportP1O Project Implementation OfficePIP Project Implementation PlanPMR Project Management ReportRMC Resident Mission, ChinaTOR Terms of ReferenceUNDP United Nations Development ProgramUNESCO United Nations Education, Scientific, and Cultural Organization

Vice President Jean-Michel SeverinoCountry Director Yukon HuangSector Manager Alan Ruby

Task Team Leader Hena Mukherjee

ChinaHigher Education Reform Project

CONTENTS

Page

A. Project Development Objective(s) ................................................................ 21. Project development objective and key performance indicators ........................................................ 2

B. Strategic Context ................................................................ 21. Sector-related CAS goal supported by the project .................................... 2...........................22. Main sector issues and Government strategy ..................... .......................................... 23. Sector issues to be addressed by the Project and strategic choices ..................................... ...............4

C. Project Description Summary ................................................................ 61. Project components ............................................................... 62. Key policy and institutional reforms supported by the Project .......................................................... 73. Target population and benefits ................................................................ 74. Institutional and implementation arrangements ........................... ..................................... 8

D. Project Rationale ................................................................ 101. Project alternatives considered and reasons for rejection .............................................................. 102. Major related projects financed by the World Bank and/or development agencies ......................... 123. Lessons learned and reflected in proposed project design .............................................................. 144. Indications of borrower commitment and ownership .............................................................. 165. Value added of Bank support in this project ..................... ......................................... 17

E. Summary Project Analysis .............................................................. 181. Economic ............................................................... 182. Financial .............................................................. 183. Technical ............................................................... 184. Institutional .............................................................. 185. Social .............................................................. 196. Environmental ............................................................... 197. Participatory Approach .............................................................. 20

F. Sustainability and Risks .............................................................. 201. Sustainability .............................................................. 202. Critical Risks .............................................................. 21

G. Main Loan Conditions ............................................................... 21

H. Readiness for Implementation .............................................................. 22

I. Compliance with Bank Policies .............................................................. 22

Appendix A Criteria for Selection of Project Institutions .......................................... ..................... 23Appendix B Project Universities and Partner Institutions .............................................................. 24

Tables .................................................... Page

Table 1. Completed World Bank Projects with IP and DO Ratings ............................................... 13Table 2. China: Support from Development Agencies ............................................... 14

Annexes

Annex I Project Design Summary .................................................. 26Appendix 1.1: Project Performance Indicators for UPs .................................................. 28Appendix 1.2: Project Performance Indicatbrs for PU Laboratories .................................................. 29Appendix 1.3: Project Performance Indicators for PIs ................................................... 30Appendix 1.4: Project Performance Indicators for NTA .................................................. 31

Annex 2 Detailed Project Description ................................................... 32Annex 3 Estimated Project Costs .................................................. 44Annex 4 Economic and Financial Analysis .................................................. 45Annex 5 Financial Summary .................................................. 61Annex 6 Procurement and Disbursement Arrangements .................................................. 62

Table A: Project Costs by Procurement Arrangements ................................................... 64Table B: Thresholds for Procurement Methods and Prior Review ................................................... 65Table C: Allocation of Loan and Credits Proceeds .................................................. 66

Annex 7 Evaluation of Project Financial Management System ................................................... 67Annex 8 Organizational Chart .................................................. 69Annex 9 Documents in the Project File .................................................. 70Annex 10 Project Processing Budget and Schedule ................................................... 71Annex 11 Status of Bank Group Operations in China .................................................. 72Annex 12 Country at a glance .................................................. 75Annex 13 Summary Education Profile: China ................................................... 77

Map IDA/IBRD No.

CHINAHigher Education Reform Project

Project Appraisal Document

East Asia and Pacific RegionEducation Sector Unit

Date: February 15, 1999 Task Team Leader: Hena Mukherjee

Country Manager/Director: Yukon Huang Sector Manager: Alan Ruby

Project ID: 46051 Sector: Education Program Objective Category: EA

Lending Instrument: Sector Investment Loan (IDA-IBRD blend) Program of Targeted Intervention: [ ] Yes [x] No

Project Financing Data [x] Loan [xl Credit [ Guarantee [] Other[Specify]

For Loans/Credits/Others:

mount (US$M/SDR M): IBRD Loan US$20 million/Credit US$50 million equivalentProposed items: [ ] Multicurrency [x] Single currency, specify, US Dollar

[x] Standard Variable [ ] Fixed [x] LIBOR-basedIBRD Loan IDA Credit

Grace period (years): 5 10Years to Maturity: 20 35Commitment fee: 0.5%Contractual rate: 0.75%Service charge: -- 0.75%Front-end Fee: 1.0%

Financing plan (US$M):Source Local Foreign Total

GovernmentParticipating institutions 34.0 0.0 34.0

IBRD 11.3 8.7 20.0IDA 12.4 37.6 50.0

Total 57.7 46.3 104.0

Borrower: People's Republic of ChinaResponsible agency(ies): Ministry of Education

Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004Annual 1.0 30.0 30.0 5.0 3.0 1.0

Cumulative 1.0 31.0 61.0 66.0 69.0 70.0

Project implementation period: Five years Expected effectiveness date: September 1999 Expected closing date: July 2005

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A: Project Development Objective

1. Project development objectives and key performance indicators:

Project Development Objective. The principal objective of the Project is to improve the quality and relevance ofundergraduate basic science and engineering programs through integrated reform activities in curriculum andteaching methodology.

While project investments would be made primarily at first and second year levels, they would provide the impetusfor embedding reforms across all four years of undergraduate science and engineering programs. The Project wouldfocus on reforms in curriculum and teaching methodology, and by strengthening planning and management atinstitutional and central, Ministry of Education (MOE) levels, would improve capacity to implement reforms inteaching and learning. The reforms would assist the Chinese government in implementing much needed changes atthe first and second year undergraduate basic science and engineering levels with the aim of keeping abreast with theaccelerating speed of knowledge generation and technology development. Project reforms would be consistent withnational efforts to speed up transformation from a planned economy to a market economy and, if successful, provideimportant and closely-monitored models of change for China's vast higher education sub-sector. Competitiveselection processes, a new concept in the area of centrally-organized curriculum development in China, would beintroduced in one sub-component. The 28 project universities themselves have each identified at least one weak-performing partner university (although one project university has four), disadvantaged by scarce financial andhuman resources or by location in a poor area, and have jointly developed collaborative programs to be undertakenunder the Project. The total number of partner institutions would be at least 31. These partner institutions areintegral to the Project design and content. They would extend the Project's impact substantially and help to reduceexisting professional and technical disparities between universities.

Key Performance Indicators (see Annex 1): Key performance indicators have been developed for the purposes of(1) monitoring anticipated Project outputs during the project period and their impact on project beneficiaries; and (2)continuous monitoring of quality during and beyond the project period. These indicators have been discussed withand found acceptable by MOE, Project universities and the Bank. Four prototype tables to be used by ProjectInstitutions and MOE to monitor progress of activities are appended to Annex 1. These are to be used by ProjectUniversities (Appendices 1.1, 1.2 and 1.3) and MOE (Appendix 1.4). Project institutions have provided plannedtargets for the years 1999, 2002, and 2004 for the purpose of guiding and monitoring implementation. These targetfigures are available in the Project Files.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the Project:

CAS document No. R98-107 Date of CAS discussions: May 6, 1998

China's economy is one of the fastest growing in the world. The CAS (China: Country Assistance Stratregy ProgressReport: R98-107 dated May 6, 1998) recommends that an area which needs to be addressed is increased training inthose skills necessary to accelerate China's entry into the 21st century's information-based economy (page 5. para.22). The Project directly responds to the CAS recommendation. The proposed reforms to be implemented throughthe Project have been designed to ensure that university training in science and engineering results in a better fit withthe rapid technology-based changes in the economy and labor market.

2. Main sector issues and Government strategy:

Background. The first wave of higher education reform came in the 1950s when the Chinese govermment introduceda higher education system geared to train students to meet the manpower needs of government and the society atlarge. Destroyed by the Cultural Revolution (1966-76), China's higher education system was rebuilt only in the late1970s as one element of a strategy to modernize the country. Much external assistance at the time was in piecemeal,

3rehabilitative mode. The 1978-94 period witnessed a remarkable proliferation of public, regular higher educationinstitutions -- from 598 in 1978 to 1,080 in 1994. Enrollment numbers grew from 0.86 million in 1978 to 2.8 millionin 1994. The total enrollment for full-time and adult education degree programs was almost 6 million in 1998. Full-time students in undergraduate and short-cycle courses grew at an annual rate of 7.7 percent. Graduate enrol;mentrose from zero to 0.13 million by 1994. The higher education participation rate for regular students and adulteducation stream students at just about 7 percent of gross enrollment, however, is low when compared to other EastAsian economies. For example, the higher education participation rate is 10 percent in Indonesia, 19 percent inThailand, 20 percent in Hong Kong, 39 percent in Taiwan (China), and 51 percent in the Republic of Korea. Thismay have serious implications for the sustainability of economic growth and long-term social development in China.In relation to the pressures of a growing market economy, the higher education sub-sector as a whole faces someproblems which may obstruct its further reform and development.

Public spending on higher education grew by an annual average of 9.7 percent between 1978 and 1994. Publicspending on higher education increased from 20 percent of total public expenditure on education in 1978, peaking at29 percent in 1984, then declined to around 17 percent between 1989 and 1992, climbing to around 19 percent in1994. Given the enrollment ratio of 7%, public spending on higher education is at the high end by internationalcomparison: for example, Indonesia, Malaysia, Thailand, Korea and Japan spent 11-17 percent of public expenditure.

China's rapid growth with an annual average GDP rate of 8 percent in real termns between 1978 and 1997 haspresented major challenges to the nation's higher education system. Since 1978, the Chinese Government has placedemphasis on the rapid expansion and improvement of higher education to help improve the quality of education andtraining to assist the country's economic and social development. In 1985, the Government adopted the documentDecision on Education Reform (CPC, 1985) that, inter alia, aimed at providing the mix of skills required in a rapidlydeveloping society, to improve efficiency, quality and equity, and to release resources required to develop andenhance education at lower levels. The reform document provides a policy framework supporting the revitalization ofboth curricular content and teaching.

More recently, in order to speed up transformation nationwide from a planned economy to a market economy, theGuidelines of China's Educational Reform and Development (GOC, February 1993) called for reforms to (a) providethe required specialists for China's modernization and for establishment of a socialist market economy; (b) improvethe social status, work and living conditions of teachers; and (c) build up 100 key universities and establish keycourses of studies and specialized studies. Changes taking place are at two levels: primarily governmental policy andinstitutional practice. The major strategic approach is that of decentralization in institutional management andadministration with the center expected to maintain managerial oversight at the macro level. Currently, the sub-sector's attention is focused on (c) above, referred to in local parlance as Project 211 (100 leading institutions to reachinternational competitive standards in the 21st century). This vision has recently been adjusted to the economicrealities and would probably stop short at a much lower number of universities. Implications for selected universitiesare injections of capital funds, largely for infrastructure expansion and facilities upgrading, with some focus on post-graduate education programs.

One of China's key development strategies has been to strengthen her scientific and technological capacity inresearch and application. The 35 percent increase of graduates at first-degree and post-graduate levels between 1990and 1997 demonstrates the importance which Government planners and policy-makers place on this criticalcontribution to China's development. Therefore, a clear policy context for higher education reform exists.

Within the context of ongoing reforms, the major issues confronting the sub-sector include the following:

* The goal for public expenditure in the education sector is 4 percent of GDP. The current expenditure of 2%+falls far short of the plan and is not expected to change much in the near future. This has seriousimplications for the implementation of reforms involving upgrading facilities such as equipment and libraries(purchase of foreign books and journals), introduction of major curriculum changes, and training of staff.

* Striking curriculum changes initiated in the 1980s are reflected in the movement toward broad-basedstructures of knowledge and experimentation with course organization, delivery methods and the

4development of print and electronic instructional materials. These changes have put considerable demandson faculty who lack the relevant knowledge and skills.

* The Ministry of Education (MOE) has delegated financial responsibility to institutions. Cost recoverymeasures have been introduced (a national policy in 1995) and are being encouraged. Leading institutions inthriving economic areas are able to provide 40-50 percent of their revenue through self-generated income(largely through commissioned research, student fees, training and technological services), but this is not thecase in most universities. Universities in poor regions and areas are unable to generate such revenues andconsequently face considerable shortfalls in income. This is particularly true in science and technology-based disciplines which inherently require higher capital and recurrent costs. Without these investments, thequality and relevance problems of institutions are compounded as knowledge and skills in these areas changeat an increasingly accelerated pace.

* Poor institutions find it difficult to provide appropriate salary and non-salary incentives to attract and retainqualified academic staff. Present staff who are largely under-qualified are unable to meet reforn policyobjectives. The situation is exacerbated by the fact that approximately 40 percent of existing senior staffwould retire by the turn of the century (majority of these hired after the Cultural Revolution in the early'80s). The skewed age distribution of staff makes it imperative for universities to seek effective ways toupgrade and promote sufficient numbers of young scholars while maintaining the quality of the highereducation system. In 1994 less than 2 percent of university teaching staff had Ph.D. This jeopardizesleadership in academic activities. With enrollments increasing in science and technology disciplines (37percent of all enrollments in 1994 were in engineering), coupled with curriculum and teaching/learningreform policies, staff training and upgrading must assume a central role.

* Large variation and disparities exist between the richer, well-performing institutions and poorer, hinterlanduniversities: these pose serious impediments to the country's overall goals for social and economic growth.There are serious repercussions for the most disadvantaged groups which include the poor, rural, minorityand, in many cases, females.

i MOE and universities need to improve and practice contemporary methods of managing financial resourcesin order to harness and better utilize scarce resources.

• Reform efforts require expertise in management at several levels in the university's chain of authority.Academicians who are good scholars are not necessarily the best managers. Achieving efficiency andeconomy in institutional management requires substantial investment in developing management skills andcomputerized management information systems.

3. Sector issues to be addressed by the Project and strategic choices:

The Project is designed within the context of existing and clear directions for sub-sectoral reforms and on the basis ofthe findings of an in-depth sub-sectoral analysis China: Higher Education Reform (June, 1997) which was jointlyconducted by the Bank and MOE in cooperation with higher education institutions; lessons learned from ongoing andcompleted higher education projects in China; experience from other Bank regions and bilateral agencies; reportsfrom IDF grant activities on curriculum reform; and initial findings from MOE-commissioned research studies oncurriculum and teaching reform. The Bank's sub-sectoral analysis reviewed and made recommendations on the fourfollowing areas, jointly identified with MOE's Department of Finance: Relationships between Universities and theState; Changes in University Management; Financing Higher Education: Diversification of Resources; and QualityImprovement in Instructional Programs which focused on curriculum and staffing in Chinese universities. Morespecifically, the sector work on higher education reform completed in 1997 showed undergraduate science andengineering programs as among the weakest in the tertiary system. Universities' data on employer feedback showthat Chinese industries too have increasingly expressed concerns about insufficient creativity, practical skills, andability for teamwork demonstrated by recent university graduates. The Government has placed the undergraduatelevel at the top of its priority list of higher education reforms. Designed within this context, the Project has beenflagged by MOE as the second wave of major reforms, viewing it as an opportunity to create a strong, modernizedand broadened curriculum content and skills base, helping to prepare graduates for an increasingly technology-basedeconomy.

5

Since curricula at undergraduate level have not been updated for more than a decade, the Project would introducereforms in science and engineering programs at the undergraduate level, rather than at the graduate level which havealready been targeted in the majority of previous Bank-supported higher education projects. Upgrading curricula andintroducing effective teaching and learning modes would raise the quality of education, providing students with theskills and flexibility to adapt to changes in knowledge and in the job market. The introduction of reforms in thehigher education system in China follows an established and tested mode: it starts with pilots in institutions mostlikely to succeed followed by dissemination of successful outcomes throughout the system.

Keeping GOC's goals in the forefront, the Project would address some of the core issues raised in the previous sectionwith an emphasis on long-term development outcomes as a basis for strategic choices:

* The Project would support training and other activities related to continued staff improvement throughspecific integrated activities such as upgrading faculty qualifications, refocusing their attention to betterutilize experimental centers and laboratories leading to more open-ended, innovative, student-centeredlearning styles, improving conditions for practical (laboratory) work, and examination reforms.

* The introduction of textbook and materials contracts based on competitive selection/funding mechanismwould improve institutional capacity in the direction of sound mechanisms for supporting quality. Thiswould mark a major departure from the favored a priori method of selection and award in curriculumdevelopment, thus providing opportunities for all institutions to take part in quality upgrading of theirproposals, not only the winners. It also provides MOE with opportunities to develop its macro-managementand supervision role as configured in sectoral reform objectives.

* Promoting the concept of partnership linkages would provide opportunities for poorer institutions to acquiremuch needed information on curricula, teaching methodologies, examination reforms, MIS, and internationaluniversity exchanges. For the leading universities, opportunities for such linkages nationally andinternationally are legion. Poorer, low-performing universities generally function in isolation. By teaming upwith stronger institutions who have more know-how and international savvy, their chances of becoming partof the changing profile of China's academic community are improved, and this would reduce differences inquality. Through interactive communications, training programs and other dissemination activities, thepartnership program increases substantially the multiplier effects of project interventions.

* Strengthening capacities at MOE and institutional levels would improve the level of management in theentire sub-sector. In this regard, project support in terms of training and policy research would: strengthenthe management information system (MIS); enhance institutional utilization and maintenance of criticaldatabases, sharing these developments with poorer universities; and help review and rationalize fundingallocation mechanisms.

6

C: Project Description Summary

1. Project conponents: (see Annex Ifor detailed project design with performance indicators; Annex 2for detailed projectdescription and Appendix A to Annex 2for the terms of reference of the Higher Education Advisory Panel (HEAP); Annex 3for adetailed project cost breakdown):

Category Cost Incl. % ofComponent Contingencies Total

(USSM)

f Achieving Inprovement in Teaching and Learning:The objective is to institute a series of reform measures to improve the quality and relevance Consultant 94.0 90.4of undergraduate science and engineering programs. Measures underpinning the proposed services,reform include the rationalization of science and engineering disciplines, reduction of Equipment,narrow specialization, restructuring of academic programs of study, and introduction of Books,new integrative science and engineering courses. Adopting student-centered learning Studies,strategies, and making laboratories, computer facilities and library resources more readily Trainingaccessible would enhance the effectiveness of the learning process. The component wouldalso support improvement in the quality and relevance of the experimental and designaspects of science and engineering education through the establishment of new well-equipped "integrated laboratory centers" in the first and second year science and engineeringprograms. The reforms would enable universities to prepare graduates in science andengineering who have the appropriate knowledge, skills, competencies and aptitudes neededfor China's growing industries and enterprises. Activities under this component would takeplace through four sub-components: (a) Renewing and restructuring of academic programs;(b) Reforming learning strategies through measures such as adopting student-centeredstrategies, and making laboratories, computer facilities and library services more readilyaccessible.; (c) Improving the learning environment through updated textbooks, better self-directed learning options and teacher support, and through the establishment of experimentalcenters; and (d) Upgrading teachers and staff in support of the reforms. The component isdesigned to satisfy frequent demands from industrial employers for university graduateswho are more creative and practical, who are better able to work in teams, and who have abroader knowledge base. There would be continuous training and information exchangeamong academic staff and among laboratory and library staff.II. Using Partnerships and Networks to Spread Reforms:The objective is to spread the reforms carried out by Project universities by extending them Consultant 5.4 5.2to the weaker partner institutions in poor, less accessible areas through cooperative services,relationships. The traditional policy of 'hand-in-hand' collaboration between institutions Studies,would evolve to include innovative forms of cooperation specifically related to curriculum Trainingand teaching-learning methodology reform. The partnership program would enable thepartner institution to benefit from the proposed reforms, thereby significantly increasing theproject's multiplier effects and widening and deepening the impact of the reforms. In orderto embed reforms in the partners' academic programs/courses, project institutions wouldcreate an enabling environment through improved communication and disseminationmechanisms for joint working and research with their respective partners, training theirteaching staff and students. and sharing equipment and new teaching/learning materials.Monitoring indicators in shared activities (such as training) adopted by project universitieswould also be applicable to partner institutions.

III. Supporting Institutional Capacity for Change:Activities under this component, which is to be implemented by MOE, are designed to Technical 4.5 4.4strengthen institutional planning and administration, and central coordination and assistance,management. Project activities include: (a) Policy-based research studies such as Consultantassessment, establishment of tracer study mechanisms at MOE and Project Universities; (b) services,Updating and reform of 200 courses and 400 textbooks; (c) development of selected Grants,electronic teaching and learning materials; (d) Nationally-organized technical assistance Trainingactivities for implementation personnel which focus on project-related training such asproject management, procurement management and financial management; (e) Overseasstudy tours in five key thematic areas and related dissemination workshops; and (f) Overallcoordination, monitoring and evaluation of all project activities assisted by an independentHigher Education Advisory Panel (HEAP-Appendix A to Annex 2) which is to beestablished under the Project. The activities would include monitoring a Student Loan PilotScheme for Lanzhou University which is financed by a PHRD Grant. Total_ 104_0

Total 104.0 100.0

7

2. Key policy and institutional reforms supported by the Project:

* Establishing and strengthening lateral working relationships among institutions to spread reforms in curriculum,teaching and management.

* Establishing graduate tracer systems in MOE and universities in order to improve market and post-graduateemployment information as a critical element of overall planning and implementation of undergraduate curricula.

* Improving the quality of textbooks and instructional materials by initiating a competitive mechanism for selectionof authors, providing MOE opportunities to organize and manage such an initiative.

* Supporting undergraduate science and engineering programs in their endeavor to reach world class standardsthrough upgrading and training staff, improving availability and access to better managed and equippedlaboratories, and modernizing curricula and teaching-learning strategies.

* Providing MOE opportunities to strengthen its planning, monitoring and macro-management capacity asstated in all national education reform documents.

3. Target population and benefits:

Target population: 28 key national universities and 31 weaker partners in poor areas with limited resources, and thestudent/staff population within them.

Project universities were selected on the basis of criteria developed jointly (see Appendix A) between MOE and theBank. The 28 project universities are administratively mapped as follows: 25 are MOE institutions and one eachunder the jurisdiction of the Ministry of Public Health, the Chinese Academy of Science and the State Bureau ofCoal Industry. The 28 universities are located in four municipalities (7 in Beijing, I in Chongqing, 2 in Shanghai,and 2 in Tianjin), and eleven provinces: Anhui (1), Gansu (1), Heilongjiang (1), Hubei (2), Jiangsu (3), Jilin (2),Liaoning (1), Shaanxi (2), Shandong (1), Sichuan (1) and Zhejiang (1). Each of the project universities would workwith its partner institution(s) to implement the agreed reform programs. The total number of project universities andpartner institutions is 59 (see Appendix Bfor list of all 59 Project Universities and Partner Institutions).

Beneficiaries:

* Project beneficiaries would encompass 28 host and at least 31 partner institutions who would have agreedprograms of collaborative linkages.

* Approximately one million students in undergraduate science and engineering programs would benefit fromplanned reform initiatives over the life of the Project. The calculation of one million is on the basis ofcurrent enrollments in project universities and partner institutions - approximately 150,000 students enrolledin first and second years of undergraduate science and engineering degree programs over the five years ofthe Project, bringing the cumulative total to one million - who would benefit from better quality curricula,teaching, equipment and books. The one million students would signify 17 percent of total studentenrollments for undergraduate programs in Chinese universities.

* Approximately 43,000 teaching faculty and management staff (institutional managers and administrators) ofundergraduate science and engineering programs in the 28 key national host and 31 poor partner institutions.They would signify almost 9 percent of total teaching and management staff in Chinese universities.

Benefits:

* The Project would benefit the economy by assisting in the development of a pool of graduates with broad-based knowledge and skills providing them with the flexibility to adapt to the challenges of a marketeconomy. This would also have an indirect spillover effect on the rest of the labor force. Changes in partner

8institutions will have a strong impact on the quality of tertiary institutions in non-project areas, many ofwhich come under the jurisdiction of poor provinces. Provincial Higher Education Bureaus would be able tohelp in the dissemination of reforms to other institutions as well as use the experiences to inform their ownpolicy development.

* There would be an increase in efficiency in Project Universities as indicated by the expected changes instaff-student ratios (SSRs) over the period of the Project. In 1997, the average SSR was 10.36, ranging from2.30 (Beijing Medical University) to 14.90 (Nanjing University). In 2004 (Project completion), the averageSSR is expected to be 12.50, ranging from 5.0 (Beijing Medical University) to 19.8 (Nanjing University). IfBeijing Medical University is excluded from the calculation due to its special nature, then the average SSR isexpected to be 13.3. The more favorable SSRs, if achieved, would contribute significantly to lowering staffcosts.

* Training plans in Project Universities show that the proportion of teaching staff with doctoral degrees wouldhave greatly increased by the end of the Project, thereby increasing the likelihood of better instructionaloutcomes for students. Project Universities would have increased this proportion by 6 percent to 35 percent(Sichuan University) at the low end and from 30 percent to 60 percent (Beijing University) at the high end.

* Courses, textbooks, and examinations would be updated, restructured and modernized, being aligned moreclosely to international standards and to the demands of industry. By 2004, Project Universities expect tohave increased from 7 to 20 updated courses (Huazhong Institute of Technology) at one end of the spectrumand from 30 to 400 (Beijing University) on the other; books udpated range from 7 to 31 (Beijing MedicalUniversity) and from 50 to 200 (Beijing University); and proportion of courses with examinations reformedfrom 1.7 percent to 20 percent (Beijing Medical University) and 10 percent to 100 percent (FudanUniversity) or from 5 percent to 100 percent (Harbin Institute of Technology).

- By establishing mechanisms and performance indicators to monitor efficiency gains in participatinginstitutions and by strengthening through appropriate training the capacity of managers and administrators atthe central and institutional levels, the Project would respond to ongoing decentralization and expansionpolicy-based efforts in the nation's higher education system.

Benefits outreach:

- Benefits can be expected to reach students and staff who are already in the system, and those about to enter,through the spread effect of a more efficient and qualitatively improved system. For example, faculty andmanagers in partner institutions would gain from information sharing on various aspects pertaining toreforms in curricula, teaching and management through membership in higher education consortia, jointdevelopment of new curricula and appropriate training in teaching methodologies, exchange of informationon MIS issues with the host institution, joint purchasing of MIS to benefit from economies of scale, andresource sharing (for example, laboratories) opportunities for both staff and students. The multiplier effectsof the proposed reforms through the Project as designed would be far-reaching and eventually affect theentire higher education sub-sector in China. Over time, using improved dissemination mechanisms, thespread effects of reform outcomes instituted within the Project would reach up to more than double thatnumber in poor partner institutions and beyond.

4. Institutional and Implementation Arrangements:

(i) Implementation period: The Project would be implemented over a period of five years-expected startingdate is September 1999 and closing date is July 2005.

(ii) Executing Agencies: The Foreign Investment Loan Office (FILO) of MOE and the 28 project universitieswould be responsible for implementing the Project according to the planned activities under the three maincomponents. FILO has had long-term experience in project related matters, specifically with the Bank'sprocedures pertaining to procurement and disbursement. In addition, FILO is familiar with aspects ofphysical implementation of projects. By involving the Higher Education Department and other technical

9departments of MOE, and by ensuring consultation with the participating institutions, the Projectmanagement capacity has been further strengthened. All related stakeholders responsible for projectimplementation have been briefed about the Bank's requirements pertaining to financial management,procurement and other project related procedures. Every effort has been made to update the Borrowerabout the Bank's latest procedural requirements.

(iii) Project Oversight and Coordination (policy guidance, etc.): At the national level, FILO/MOE would beresponsible for overall direction and coordination, including procurement of equipment and books; thepartnership programs; organization of national and international training, workshops and other collaborativeactivities; academic coordination between institutional projects; and overall project monitoring, evaluationand reporting. FILO/MOE would submit an annual report which consolidates annual reports from projectuniversities. These reports would include reports from partner institutions. FILO/MOE would be supportedby MOE's Department of Higher Education and the specifically established advisory panel, the HEAP, andby training implementation personnel in project management and Bank procedures. At the institutionallevel, the loan offices established by the Project universities would implement their respective projectsunder the guidance of the institutionally-appointed Project Leading Groups. Given the complex nature ofsupervising 28 institutions and tracking their interaction with partner institutions, MOE through the HEAPwould perform random checks on a yearly basis throughout the Project implementation period. Differentproject universities would be targeted during each of the five years for the random checks such that amajority of the Project funding recipients are supervised during the life of the Project. The 28 Projectuniversities would be responsible for monitoring and reporting to FILO/MOE on their partner institutions'implementation activities. Annex 9 provides an organizational chart which clarifies lines of responsibility.

(iv) Accounting, financial reporting and auditing arrangements: Based on the Financial ManagementRegulations for World Bank Loans issued by the Ministry of Finance (MOF), and with reference to thenational guidelines and policies for foreign fund utilization, the detailed regulations for financialmanagement will be included in an operational manual to be issued by FILO/MOE, with basic requirementsthat: (a) An independent account and accounting system would be established for all the Project universitiesexactly reflecting the project implementation and its cash flows; (b) The double-entry debit/creditaccounting method would be applied with timely bookkeeping, accounting and reporting; (c) Specialfinancial staff would be assigned to the Project university FILO with appropriate qualification and stableservice; (d) A sound documentation retention system would be set up at all levels for financial managementwith good arrangements for keeping vouchers, records, statements, contracts, orders, and other accountingprocedures; (e) All funds, including Bank loan/credit and counterpart funds are earmarked for theirspecified purposes; and (f) Plans for fund use would be regularly reported and approved before theirexecution by MOF and MOE, based on the project implementation schedule. Formats for six-monthlyProject Management Reporting (PMR) to the Bank have been agreed. These would be furnished to theAssociation and the Bank no later than May I and November I in each calendar year.

For auditing, the State Auditing Bureau will provide audits for the project. A consolidated annual auditreport of project accounts and Special Account would be submitted to the Bank with a separate assessmentof the Statement of Expenditures.

(v) Monitoring and evaluation arrangements: FILO/MOE is responsible for monitoring and evaluation (M&E)of the Project as a whole. Its work would be facilitated by a Project Implementation Plan (PIP, see PIPPackage), and an annual action plan based on the PIP. Through site visits, e-mail communication andannual reports from the Project universities, FILO with assistance of the HEAP would monitor individualinstitutional as well as overall progress towards achieving project objectives. FILO is responsible forsubmitting to the Bank, annual audit reports no later than June 30 each year, annual progress reports no laterthan April 1 each year, and the mid-term report (MTR) which would be based on individual projectinstitutional progress reports. At the institutional level, each project university and its partner institutionthrough their respective Project Loan Office and Joint Leading Groups would be responsible for reportingto the Project Loan Office of the Project university, which would then present a consolidated annual reportto FILO. The M&E duties of the Project universities and their respective partners would be aided by theirown PIP and the corresponding annual action plan based on the PIP. The respective implementation units

10would submit periodic reports to FILO which would prepare a consolidated report for submission to theBank. The proposed annual action plan would be furnished to the Bank for clearance no later thatNovember 1 each year, providing a plan for implementation of the Project in the following calendar year.The above responsibilities apply also to the preparation of an implementation completion report (ICR) atproject completion, and in any event not later than 6 months after the Credit/Loan closing date. Included inthe ICR would be: an assessment on the execution of the Project; its costs and benefits derived or to bederived; the performance of the Borrower and the World Bank regarding their respective obligations andaccomplishments, and lessons learned. Included also would be the plans for future operations and financingof the programs which have been financed under the Project. During project implementation, periodicmissions from the Association would review the progress of project implementation according to aSupervision Plan (see PIPfor details) and based on indicators presented in Annex 1, respectively.FILO/MOE assisted by the HEAP will monitor progress of Project Universities, Partner Institutions andactivities organized by MOE.

(vi) Procurement and Disbursement (see Annex 6for details). FILO/MOE would oversee and coordinateProject procurement and would be responsible for ensuring that Bank guidelines are followed. A detailedprocurement plan outlining each step of the procurement process has been prepared by MOE (see Annex 6).There would be three phases of ICBs and international shopping for laboratory equipment, two NCBs forbooks and teaching/learning materials, and consultant services, staff training and study tours. Details ofprocurement arrangements and review functions of the agreed procurement plan are provided in Annex 6,and have been incorporated into the overall Project Implementation Plan.

For disbursement, the Special Account would be managed by FILO/MOE. Its functions include the reviewof eligibility of the expenditures submitted by project universities, monitoring the flow of funds, andpreparing and submitting disbursement applications to the Bank. Detailed disbursement arrangements arealso explained in Annex 6.

(vii) Project Implementation Plan (for details see PIP Package)

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

* Type of Institution: Bank's initial proposal that candidate institutions be limited to poor provincially owneduniversities was changed to leading centrally-owned universities on the basis of past experience and lessonslearned where low-performing institutions with weak management practices were unable to implementprojects successfully. The need for developing high-performing reform models for the variety of universitiesin China's massive higher education system was a significant additional reason for the choice.

* Education program levelfor investment:

Basic Education: Between 1992 and 1997, the World Bank and Government of China (GOC) collaboratedon a program of four basic education projects in quick succession. The projects cover a total of 364 (61percent) of the 592 nationally-designated poverty counties. GOC has its own parallel program of basiceducation projects in those poverty counties not covered by the Bank projects. Enrollment rates in 1995were 98.5 percent of the 6-11 age cohort (primary) and 78.4 percent of the 12-15 age cohort in juniorsecondary. The literacy rate of those between 15 and 25 years of age is about 93 percent. Given the goodcoverage and GOC's own firm plans to continue with their internal projects, Bank-China dialogue concludedthat the basic education sub-sector should be dropped as a candidate for the last project in the pipeline. Inaddition, Bank education strategy includes systemic reform for tertiary level where basic education policyand practice is sound. There is also a need to study the outcomes and impact of the four basic educationprojects before launching into a fifth.

Teacher Education: During earlier lending program discussions, the Bank had put forward the possibility ofworking on a third teacher education project (second would be closing June 30, 1999). MOE welcomed the

I1idea of further sector work but not a project. There are plans for restructuring this sub-sector and MOEpreferred to iron out internal matters relating to policy, financing, etc. without a Bank project in the offering.

Higher Education: Following the Cultural Revolution, China's most pressing task was to rehabilitate thesub-sector and initiate sizable graduate programs to train the country's researchers and specialized personnel.Since 1981 eight Bank projects (totalling $910.4 million) were undertaken across the sub-sector, butnonspecialized universities in provincial jurisdictions were not included in any of the projects. GivenChina's economic growth and the large base of well-trained personnel required to operate a modem,technology and knowledge-based economy, GOC perceived the Bank as well-placed to build on its pastrehabilitative work, and therefore preferred to borrow for reforming the higher education sub-sector. Inaddition, GOC stressed: (a) reform in curriculum and teaching, and (b) the need for models of good practicein improving efficiency to reduce public expenditure for higher education and this should be embedded inboth strong and weak higher education institutions. The pattern of reform in China is as follows: being atop-down hierarchical society, new ideas found to be successful at the top key universities would then beimplemented at the middle-level relatively strong, provincial universities, finally making their way to thelowest tier. The focus of the Bank's higher education reform project is dissemination of good practicedesigned to leapfrog the traditional tiers - starting with elites but moving across to poor institutions usingbetter modes of communication including modem technology.

Undergraduate Level: Post-graduate science and engineering programs would have been a good choice interms of strengthening leadership in these critical developmental areas for a growing technology-basedeconomy. However, previous projects did not approach the teaching and learning of undergraduate scienceand engineering courses on a systematic institution-wide basis which would have far-reaching and long-termoutcomes for a wider bank of graduates coming into the labor market. The alternative of supporting graduatelevel education was rejected also because the Government's "Project 211" provides greater emphasis onimprovements at graduate level, while mainly focusing on overall physical construction and infrastructure ofkey national institutions.

Why science and engineering: From a macroeconomic perspective, the Project focuses on science andengineering rather than other subject areas because China's transition from a command to a socialist marketeconomy is increasingly exposing the economy to global pressures. In order to remain globally competitive,China's manufacturing and technological base would have to be strengthened. An integral part ofstrengthening the economic sector is to ensure a critical mass of well-trained personnel who are flexible,creative, practical, and adaptable to future technologies and labor market needs, and are better able to workin teams. The short-term market need in China might be for economists and accountants but, from a long-term perspective, there would be an increasing need for qualified scientists and engineers. From a lendingperspective, non-governmental institutions and other donor agencies have more readily taken upresponsibility for non-heavy equipment based studies such as accounting, management and economics.Moreover, considering the short shelf life of science and technology programs, the need for high investmentsin appropriate equipment, and the accelerating pace of knowledge generation in these areas, it is difficult toidentify support for such programs from local sources or bilateral and other grant-giving donor agenciesincluding the UN. The Bank's international experience and familiarity with the sub-sectoral characteristicsthrough previous projects vests in it a comparative advantage to assist China in building up a soundfoundation for science and technology oriented toward the 2 1 st century.

* Why thefirst two years of undergraduate science and engineering programs and not the entirefouryearsof study. While project investments would be made primarily at first and second year levels, they wouldprovide the impetus for embedding reforms across all four years of undergraduate science and engineeringprograms. The choice has been made to support an in-depth treatment of curriculum and pedagogicalreform, given the limited financial resources. The momentum commenced by the Project activities wouldhave a spread effect on the entire institution as the learning environment changes with modemized curriculaand equipment, updated teaching/leaming approaches and more open-ended leaming styles, updatedlaboratory and library facilities. Equipment would be available to third and fourth year programs as well.An additional reason was the need to design a project which could be supervised effectively in terms of the

12detailed qualitative reform activities whose progress would be assessed through the use of mutually agreedindicators.

* Projectfinanced equipment. The proportion of costs for training (6.1 %) is relatively low (see paragraph onStaffing Issues below) in comparison to the major share of project costs (78 percent) that would financeequipment. This would appear not to signal much in terms of reforms and quality improvement. However,based on international experience and China's own record of utilizing and maintaining equipment,investment in educational equipment is fundamental as it would: (a) facilitate a shift from a theoretical to apractical orientation among students; (b) open access to new experimental centers which would foster a shifttoward self-paced learning and student-centered experimentation; and (c) facilitate the introduction of open-ended, design-oriented and problem-based elements. Updated, imported equipment require hard currencywhich universities cannot readily access, hence MOE's and project universities' decision to allocate thelargest share of Credit/Loan proceeds to equipment. The Bank is the only agency which can providefinancing for large amounts of expensive equipment and this is seen as a comparative advantage by theBorrower.

* Staffing issues. While the crisis proportions of imminent staff retirements perhaps indicate that Projectdesign and costs could reflect more closely the need to increase qualified faculty, the reasons for the lowlevel of Project costs earmarked for staff training are the following: (a) staff training in the new learningmodes would in most cases have to be in-service; under the two earlier Bank-funded UniversityDevelopment Projects, a centralized staff training network has been established with the overall objective toprovide training programs to at least 5 percent of the teaching staff annually. This practice would continue tobe an important source of qualified staff; (b) the Project would focus on training key trainers, using thecascade approach to train those at other levels; (c) long-term training abroad which has always been a high-ticket item is rarely taken up due to the negative brain-drain experience of the '80s. Local training costs areextremely modest by comparison; and (d) grant-giving bilateral agencies provide training funds (see Table 2,page 14) which are preferable to the Borrower to loans entailing repayment.

2. Major relatedprojectsfinanced by the Bank and/or other development agencies (completed ongoing andplanned):

Participation of international and bilateral development agencies in the higher education sub-sector demonstrates theirrecognition of a positive, pro-reform environment in China. Support from these agencies complements the Bank'sefforts to accelerate reforms. As Table I below reveals, such aid generally constitutes training and research activitiesat the post-graduate level.

13Table 1. Completed World Bank Projects with IP and DO Ratings

Latest Supervision(Form 590) Ratings(Bank-financed projects only)

Sector Issue Project Implementation DevelopmentProgress (IP) Objective (DO)

Enhance the quality and productivity of post- China: Key Studies Development Project S Sgraduate research in strategic areas relevant to (Cr.22 10; January 1991)long-term economic and social development;provide a modem scientific infrastructure (keylaboratories) for Chinese scientists trained athome and abroad.Rapid expansion to help reduce serious China: Second University Development Project S Smanpower constraints; improve the balance (Cr. 1551; February 1985)between manpower supply and requirements inengineering and economics/finance sector,particularly at the post-graduate level.Strengthen 28 key universities in selected China: University Development Project S Sscientific and technical fields at the graduate (Ln.2021 & Cr.1167; June 1981)levelImprove quality and management in provincial China: Provincial Universities Project S Suniversities (largely normal/teacher training) (Cr. 1671; February 1986)Develop and expand access to post-secondary China: Polytechnic/Television Universities Project S Seducation for secondary school graduates and (Cr. 1411; August 1983)adults whose education had been disruptedduring the Cultural RevolutionImprove quality of undergraduate education; Indonesia: Development of Undergraduate Education S Simprove efficiency of the educational process; Projectand improve relevance of study programs (Ln. 4043; May 1996) _Improve the quality and relevance of Indonesia: Quality of Undergraduate Education Project S Sundergraduate education; restructure higher (Ln. 4193; May 1997)education management; and improvegeographical and social equityDevelop technical and scientific skilled Thailand: Universities Science & Engineering S Smanpower to handle rapidly changing Education Projecttechnologies in the productive sectors to (Ln. 4160; February 1997)strengthen the country's long-termtechnological needsA programmatic approach to create a more Korea: Higher Technical Education Project HS HSflexible system of supplying technical skills; (Ln. 1800; January 1980)remove principal constraints on qualityimprovement; and reduce projected investmentgap in higher technical educationEstablish competitive environment for Argentina: Higher Education Reform Project S Simprovement of higher education (Ln. 3921; June 1995)Improve responsiveness of higher education to Hungary: Human Resources Development Project S HSmarket economy (Ln. 3313; March 1991)Increase responsiveness to social and economic Hungary: Higher Education Reform Project S Sneeds; improve the operating efficiency of the (Ln. 4287; January 1998)system; and mobilize private finance.

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

14Table 2. China: Support from Development Agencies

Cooperation Programs Aspects of supportSino-US Fulbright Program Academic exchange program: (a) Subsidizing Chinese scholars,

Commenced in 1946 and resumed in 1980. researchers and graduates to US Higher Educational Institutions and/or toscientific research institutions; (b) Financial assistance to overseasscholars coming to China for giving lectures. (c) Short-cycle exchangefocusing on American research and teaching methodologies.

Sino-US Educational Program in Economics Activities include training in economics; sponsoring Chinese scholarsCommenced in 1984. and economist groups to the US; short-cycle training; giving ChinaSupported by Ministry of Education (PRC) and Ford Foundation (US) current textbooks of economics and relevant periodicals, etc. as gifts.

Sino-British Friendship Scholarship PlanCommenced in 1987. Valid for 10 years.Total sum of 3.5 m pounds annually - Chevalier Bao Yugangprovided 1.4m pounds; the GOC 1.4m; Government of Great Britain0.7m pounds

Sino-British Technical Cooperation Program Focus of cooperation on scientific research including personnel exchangeGreat Britain's input: nearly 4.Om pounds. for academic programs. At present 20 persons are in Great Britain on

training. 12 scientific research program have been carried out so far.Sino-Canadian Educational Cooperation Program on University Chinese students sent to Canada for Master's or Doctoral degreeManagement programs. (b) Launch of MBA program in China with Canadian

Started in 1983. The third cycle began in 1996. assistance. (c) Launch of Doctoral program by both Chinese andCanadian contribution Canadian$5 m. Canadian universities. (d) Educational program on population in both

high schools and adult schools for peasants. (e) Cooperation on majoreconomic management carried out by 20 Canadian universities and 24leading and coordinated Chinese universities.

Sino-Canadian University Cooperation Consolidation Program Personnel exchange, cooperation on scientific research, etc.Started in 1996. Valid for 5 years. For cooperation among 11 pairs of higher education institutions fromTotal sum of Canadian$ 10.Om through the Canadian International China and Canada.

Development Agency (CIDA)

Sino-Canadian Higher Education Program Scientific research and human resource development.Started in 1996.Total sum of Canadian$1O.0m

Sino-Canadian Post-senior High School Vocational Education Financial aid to Canadian Community Colleges and Chinese VocationalCooperation (1990-96) Colleges for setting up cooperative ties.

Canadian contribution: Canadian$7.5m

Sino-Australian University Cooperation Program Financial aid to higher education institutions of Australian and ChineseFirst cooperative endeavor 1990-93. institutions of higher education for cooperative research in science,Australian Govemment contribution: Aus$1.28m economics, law and social services.Second cooperative endeavor since 1996. Valid for 3 years.Australian Govemment contribution: Aus$4.18m

3. Lessons learned and reflected in proposed Project design:

The Project design takes cognizance of lessons learned from: the Bank's paper on Higher Education. The Lessons ofExperience (1994); findings of the Bank's sector study on Higher Education Reform in China (1997), and an earlier studyManagement and Financing of Higher Education (1 986); ongoing and completed higher education projects; andimplementation completion reports and performance audit reports of higher education projects from the region and elsewhere.

A. The World Bank's review of Higher Education: The Lessons of Experience. Summarizing the Bank'sinternational experiences:

(i) Advanced scientific training and research require strong undergraduate programs. Whole institutions andsystems of higher education must be strengthened to produce sustainable improvements. The Korean caseis cited where strengthening of links between science and technology institutions and industrial users isemphasized. The Project would attempt to reform curriculum and teaching methodology so that a soundfoundation is provided for undergraduates to ensure that their training and education are relevant and would

15continue to be relevant to the labor market. To this end, MOE and project universities would establishgraduate tracer systems under the project.

(ii) In terms of improving quality of higher education, investments should be designed to: (a) enhance thequality of instruction and research through technical assistance targeted toward upgrading the qualificationsof academic staff; (b) introduce innovations in teaching, organization and content of academic programs,and methods of assessing student performance; (c) increase the provision and quality of instructionalfacilities and resources to support institutional plans for self-improvement; (d) improve examinations andselection processes; (e) increase the productivity and quality of graduate training and staff research; and (f)include support for national and international scientific communication to attain the objective of increasingproductivity and improving the quality of graduate training and staff research. National and internationalcommunication would be ensured through the linkages and partnership elements such as the ChinaEducation and Research Net (CERNET) which would promote the dissemination of knowledge andinformation, and through overseas study tours, seminars etc.

B. World Bank Country Study: China - Higher Education Reform (1997): The Project builds on the reform effortsbeing put in place by MOE in the higher education sub-sector, and it sits squarely within the government's sub-sectoral strategy which is articulated in the World Bank Country Study: China - Higher Education Reform (1997).The Project incorporates several of these elements to promote reform in higher education at the undergraduate level:(i) supports reforms and sustainable curriculum review and renewal processes in undergraduate programs to create astrong scientific and research base; (ii) supports and intensifies staff development in conjunction with curriculumreforms in science and technology; (iii) enhances the quality of instruction and research through technical assistancetargeted to upgrading the qualifications of academic staff; and (iv) promotes linkages between stronger and weakeruniversities within the country, between universities and industry, and between Chinese universities and internationalinstitutions.

An internal review of implementation experience conducted by the Bank in 1992 concluded that Bank lending forhigher education has been most successful in those countries where a sub-sectoral strategy has been developedthrough a series of complementary project investments. China has been cited as an example of a country where loanshave involved different tiers of the sub-sector in ways that have strengthened the higher education system as a wholeand addresses equity and quality issues in a comprehensive manner. Since 1981 (the last project became effective in1991), through eight projects totaling US$910.4 million, the Bank has provided assistance to China's attempt toalleviate high-level skill shortages in strategic areas most affected by the Cultural Revolution.

C. Lessonslearnedfromprevious(usingJCRsandprojectauditreports),andongoingBankexperienceinChinaand other East Asian countries, and transitional economies such as Hungary and Romania indicate that a broadunderstanding of reform activities is crucial to implement strategic reforms from a sub-sectoral perspective, and inbuilding in appropriate institutional development mechanisms, improvements in planning and management, andincreasing financial and academic accountability. The reform elements of the Project are articulated within thecontext of ongoing higher education reform efforts in China. Counterparts (MOE and higher education institutionalheads) have actively participated in articulating proposed reforms through the Project. Project universities have beenselected from leading institutions which usually have more qualified and experienced staff, thereby increasing thepotential for successful implementation of project goals and sustainability. The 28 institutions are leadinguniversities and given the Project's critical reform focus, they would be expected to provide important models for thesub-sector. The Higher Education Reform project is the last project in the pipeline until China revisits its policy ofnot borrowing IBRD loans for the social sector. Therefore, it is important that strong, sustainable models areembedded at this stage. Proposed reform elements through the Project include:

* Curriculum. To build curriculum renewal and revitalization into the system, long-term plans for enhancingongoing curriculum review mechanisms at the center and institutional level include cross-institutionalcurriculum reform and teaching materials development. The Project includes mechanisms to strengthencurriculum development linkages and exchange of information between project universities and their poorpartners as well as foreign institutions and employer groups.

* Faculty Development. The Project addresses the urgent issue that by 2000 about 30-40% of staff wouldretire. Drawing on international lessons, the Project builds in elements of upgrading faculty qualifications,

16promotion criteria for younger academic staff, and provision of incentives to retain qualified and experiencedstaff. With the introduction of new equipment and better laboratories within the scope of the Project, anacademic career would become more appealing to younger staff.

* Equipment selection, utilization and replacement. The Project assimilates lessons of experience fromprevious Bank projects such as the University Development Project (Project Completion Report-PCR1988) in that equipment lists would be scrutinized to ensure that overly sophisticated equipment with lowutilization potential are avoided; equipment purchased for faculty research and development are rationalizedto encourage inter-university cooperation and 'condensed obsolescence' of equipment is avoided by ensuringa phased procurement and installation plan to even out the replacement cycle.

* Management efficiency. One of the most effective ways to improve both efficiency and academic quality isthrough sharing of scarce resources and cross-fertilization of ideas within and between universities as well asbetween universities and other organizations, including industry. The Project reforms would activelypromote the establishment of linkages/partnerships both nationally and internationally between Chinesehigher education institutions and international higher education institutions/consortia as well as industry.

* Monitoring and using an advisory panel. Experience in previous Bank projects in China reveals that the roleof an advisory panel in project preparation, implementation and evaluation is pivotal to achieving projectobjectives. A Higher Education Advisory Panel has been established and provided guidance to ProjectUniversities during project preparation. Confirmation was obtained at negotiations on the composition of thePanel and its Terms of Reference.

4. Indications of borrower commitment and ownership:

* Government's commitment to reform is evident in several nationwide initiatives which followed its 1993Guidelines for Development and the Reform of China's Education System. The Guidelines called upon theeducation sector to help speed up the process of transformation from a planned to a market economy.

* Project universities are committed to the Project because it complements well the Government's massiveongoing "Project 211 " which largely pertains to capital construction and infrastructure and qualityimprovement at the post-graduate level. They see the Project as contributing to their own efforts to buildtheir respective institutions into centers of excellence at the undergraduate level.

* A fairly extensive body of research had been commissioned by MOE in locations throughout China andfindings had been reported in the Project areas of curriculum and teaching as well as management reform.Prior to the Identification and Preparation Mission, MOE's Higher Education Department had mounted andcommissioned 216 research projects nationwide on content and teaching method reform as well asmanagement change in higher education reform. (The Bank had supported these activities earlier through anIDF Grant.) Findings of national and institutional projects would provide part of the base of proposedProject activities. Findings are summarized in project files.

* National workshops were convened during the Project identification/preparation and pre-appraisal stagesto build consensus, and to ensure that Project universities were fully informed about the various aspects ofproject design, implementation and follow-up. Between Bank missions, the MOE Task Team has convenedapproximately four workshops for continuing this work, and in addition has a national experts' committeewhich worked with and advised project teams. Project design was, therefore, based on information sharing,exchange of views, and wide consultation. Persons who were involved in the design and preparation stagesincluded management, administrative and academic staff of universities, and civil servants managing highereducation institutions both at the MOE and other central line ministries, provincial and local higher educationbureau officials. In addition, the graduate tracer and social assessment studies have reached out to a widergroup of stakeholders, including students, parents, employers, and representatives of minority communitiesto elicit their views about the Project and its objectives.

17* During site visits to candidate institutions university Presidents, local municipality and provincial officials

offered support and expressed willingness to provide a proportion of counterpart funds. This was also inkeeping with the current trend of increasing local support for state-owned institutions. For example, localauthorities' contribution under the Project would benefit those resettled in the Chongqing Municipality areaas a result of the building of the 3 gorges, catering to the retraining and development of human resourceneeds of the local population.

* Institutional initiatives in reform efforts are in place and these have constituted one of the selection criteriafor project participation. The Government is looking to the Project to assist institutions in systematizing anddeepening innovative activities, providing strong demonstration effects for the higher education sub-sector asa whole.

* MOE has completed translating the 1997 Bank Sector Report China: Higher Education Reform (op. cit.) andis in the process of disseminating it widely to officials and to universities in order to complement the Projectpreparation process and also as part of the wider reform effort.

* The Higher Education Reform Project signifies the final IDA Credit for the education sector in China. Theborrower has requested a higher education reform project during lending meetings since 1992 and hasexpressed satisfaction through statements of high-level officials. These also indicate their eagerness in takingadvantage of the Credit.

a The willingness of MOE (and institutions) to experiment with a Loan/Credit blend provides added evidenceof commitment, particularly when contrasted with their earlier negative reactions to Bank's suggestions.

* The Bank's counterpart team has already set a precedent by assisting the Bank in developing andimplementing previous Bank projects in the country. The counterpart team is, therefore, familiar with Bankproject processing procedures and requirements. Similarly, continuity in project development is beingassured through the Bank Project preparation team which has collaborated with the counterpart team inarticulating the findings of the World Bank Country Study: China - Higher Education Reform (September1997). Within the context of the Project, technical assistance has been built into the preparation processthereby increasing understanding of Bank guidelines, procedures and processes. MOE and the Projectuniversities have established and strengthened the functions and staff of Project Implementation Offices(PIOs) for project preparation and implementation. This demonstrates their seriousness and commitment tothe ongoing reform efforts in the country and to the Project. MOE, advised by the Bank, has developed adetailed Project Implementation Plan (PIP) which is seen as their working document.

5. Value added of Bank support in this project:

* The Bank's support is intended to initiate major reforms system-wide, and reinforce Government's strategy inhigher education. Other donors are providing grants or loans for technical assistance and forexperimentation of new ideas through pilot projects. The proposed Credit/Loan complements their activities(for example, work on quality management by British Council). Past experience provides evidence that Banksupport provides a strong magnet for attracting funds from other donors. This would buttress efforts to bringinternational experience to Project universities through the promotion of linkages, exchanges, partnerships.

* The Project complements ongoing Government reforms in higher education at the post-graduate level,particularly in the context of the Government's "Project 211 " effort. Project 21 1 does not address specificsoftware aspects of curriculum and teaching reform at the undergraduate level, focusing largely on theenhancement of physical infrastructure. The Project provides the impetus for Government reforms incurriculum and teaching methodology, management and finance.

* The Bank brings valuable international experience with regard to science and engineering development,international higher education consortia information, and management information systems.

18E: Summary Project Analyses

1. Economic

Economic evaluation methodology: [x] Cost Benefit Analysis IRR = 20% NPV = US$108.5

Economic Analysis (see Annex 4 for details). Due to the data structure and the large number of non-quantifiablevariables arising from promoting quality improvements in higher education, appropriate proxies have been identifiedto capture the direct and indirect benefits of the Project. Economic benefits of the project are estimated byquantifying (a) cost savings at the institutional level due to improvements to the quality of undergraduate science andengineering programs introduced progressively through Project implementation, and improved management andadministrative efficiency through the introduction of management information system (MIS) suited to proposedreforms. Direct benefits of staff training for teaching faculty and management staff for adopting newteaching/learning techniques are also included here, as are the advantages reaped by Project universities and partnerinstitutions as a result of partnership linkages; and (b) The increase in incremental earnings of graduates who havebeen through a system with quality oriented reforms in teaching/learning such that they are empowered with creativeminds, adaptable and flexible to the emerging needs of a changing labor market. Assumptions for incrementalearnings of university graduates that arise from the Project are based on estimated earnings of graduates from highereducation institutions of varying quality, in economically advanced as well as less advanced geographical areas dueto the highly dispersed nature of higher education institutions. A quantitative sensitivity analysis undertaken to testthe vulnerability of the analysis to critical Project risks shows that the analysis is particularly sensitive to wagedifferential attributed to graduates.

2. Financial

Financial Analysis (see Annex 4 for details). Financial sustainability analysis for institutions and macro fiscalanalysis show that the Project would have a positive impact on the higher education sub-sector without undulyburdening the repayment capacity of Project universities and the Government (see Tables C and D of Annex 4).Incremental recurrent costs resulting from the Project are within the projected budgets of both the government and theProject universities. Since tuition fees have become an officially mandated cost recovery mechanism since 1997, andconsidering that by the end of project implementation most students would be paying tuition fees, revenues forProject universities would increase in the future. Moreover, the added revenue-earning capacity for Projectuniversities and partner institutions from research contracts as a result of trained faculty, better quality equipment andlaboratory facilities would contribute to the overall financial sustainability of Project benefits, ensuring that proposedreforms are sustained beyond the life of the Project. A streamlined financial management system suited to theemerging needs and complexities of institutional administration would introduce appropriate monitoring measures forboth MOE and the Bank.

3. Technical

[x] None

4. Institutional

Addressing institutional weaknesses during project implementation: The stage has already been set by providingappropriate information to the Project universities and the borrower, with regard to some of the crucial detailsabout project implementation. However, concern remains about a number of issues:

Lateral interactions within and between universities. Previous Bank-supported education projects have shown a highdegree of compartmentalization among and within the various implementing agencies. The current Project has beendesigned with special attention to dissemination mechanisms and communication channels with regard to research,development of textbooks, and national level seminars to address this traditional weakness in lateral interactions.

Coordination between MOE and Project universities. The Bank Task Team is working with the MOE Task Team toensure that implementation arrangements take proper cognizance of the weakness in coordination between MOE and

19Project universities. The large number of project universities located in various provinces, some of which havebarely adequate communication facilities, would exacerbate the situation. The Bank Task Team has brought thisaspect to MOE's attention and has stressed the need for better communication in order to strengthen projectcoordination.

Financial Management Review. In accordance with the Bank OP/BP 10.02 guidelines and the Guide for Review andDesign of Accounting and Reporting system for World Bank Financed Projects (December 1997), an evaluation ofthe Financial Management System of the Project (see Annex 7), including review of internal control, projectaccounting, planning, budgeting, financial reporting system and staffing have been carried out. Auditing and SpecialAccount arrangements and related disbursement issues were covered in the assessment. The financial managementsystem assessment confirms that the Project has satisfied the Bank's minimum financial management requirements.

Moving the Special Account to FILO/MOE from MOF should help reduce the period between application forreimbursement by project entities to disbursement from the Special Account; and the distribution of the financialoperations manual with detailed guidelines on accounting procedures to all project universities would address thisweakness. Agreement has been reached for the Bank to receive semi-annual reports on the progress of the project,using the Project Management Reporting (PMR) format agreed by MOF, FILO's Finance Division and the Bank (alsoin Annex 7). With the agreement of MOF, the Bank would provide software and training to FILO and all projectentities. The software would be available by the end of June 1999.

Procurement Review. A Procurement Agency Capacity Assessment including an overall risk assessment onprocurement cycle management, organizational function and staffing and general procurement environment wasconducted at Project appraisal. The review identified issues pertaining to procurement planning, process andprocurement cycle management. An action plan has been developed to address identified deficiencies. A summaryof the issues including risk assessment and recommended actions are available in Project Files.

5. Social

In compliance with the region's operational guidelines and to ensure maximum stakeholder participation, a socialassessment (SA) study was designed and carried out in September/October 1998. The study is available in theProject Files. The objective of the study was to confirm that project design reflects relevant social concernspertaining to issues such as equity, student preferences, and quality of higher education. Based on the facts gatheredin the study and analysis of the issues identified, the assessment confirmed the appropriateness of the overall projectobjectives and recommended interventions for best achieving these objectives: (a) The partnership program betweenthe host institutions and their partners in poor and disadvantaged areas was important and was institutionalized underthe Project as a prerequisite for the host institutions implementing Component I in the Project; (b) Student assistanceprogram should be developed or strengthened to help the poor, needy, and ethnic minority students for their ongoingstudies; and (c) Project Universities should develop a participatory process and mechanism in project designimplementation and evaluation to ensure fuller participation of students, teachers and other stakeholder groups.

As a result of the study, the decision was taken to (i) give added attention to poor partner institutions by expandingthe collaborative activities into a component with its own monitoring indicators; and (ii) share with other institutionsthe outcomes of the pilot Lanzhou University Student Loan Scheme which is scheduled to have an interim reportfrom FILO to Project Universities and Partners at mid-term.

6. Environmental

a. Environmental issues:

(i) This is a category 'C' project. The Project focuses on reform of undergraduate science and engineeringprograms in Higher Education Institutions. No adverse environmental consequences are anticipated.

b. Resettlement:[x] None

20There will be no resettlement under the project. Remodeling and rehabilitation of existing lab facilities will befinanced by the project but not land acquisition.

7. Participatory Approach:

a. Primary beneficiaries and other affected groups: Direct, primary beneficiaries would be students, teachers,research, managerial and academic staff of project universities, and officials at central and local levels who are part ofthe management corpus. The Task Team met with students and officials during site visits to 11 universities. Duringthe identification/preparation, pre-appraisal, and appraisal missions the Bank team met with representatives from all28 project universities and some partner institutions, individually by institution and in clusters to refine the Projectobjectives, outcomes and activities. The discussions were based on strategic development plans prepared by theProject universities in consultation with poor partner institutions where appropriate. Consultations with students,teachers and management staff of project universities and some partner institutions helped to define projectcomponents and activities. Beneficiaries signaled levels of implementation capacity for reforms and the strengths andconstraints of beneficiaries have been taken into consideration in preparing the Project Implementation Plan. Duringpre-appraisal the Bank Team provided technical assistance to institutional project teams to help them refine thecurriculum, teaching and management reform elements of the Project.

b. Other key stakeholders: In the process of completing the Social Assessment Study stakeholder analysis wasconducted to identify primary project beneficiaries and other relevant stakeholders. The objective was to examine theinteraction between them in the context of the Project. Apart from the primary stakeholders identified, students'families, employers, and local communities representing disadvantaged and poor areas are the important social stratadirectly affecting or affected by any changes in universities. Through a series of topic surveys and interviews,consultations were held with the identified groups to determine their interests and needs, specifically, to solicit theirviews on access to higher education, learning environment in universities, institutional management and teachingquality, and their attitudes toward overall higher education reform and the specific reform actions proposed under theProject. The analysis and consultations together helped to ensure that Project objectives and incentives for changeare in demand and acceptable to the range of intended beneficiaries, and that the proposed reforms within the scopeof the Project take into consideration gender, ethnicity, and other social differences.

F: Sustainability and Risks

1. Sustainability

Cost recovery mechanisms have been introduced into the higher education system since 1995. A system of tuitionfee is now being implemented. This would ensure a gradual increase in the real income of higher educationinstitutions. At present students enrolled in university up to 1995 do not pay tuition fees. When this crop of studentsgraduates in 1999, the entire student body enrolling in universities would be required to pay tuition fees. Moreover,absolute enrollments in universities are expected to increase in the future. The anticipated growth in real income ofinstitutions would increase their ability to sustain project reforms in teaching and learning. Details on financialsustainability are available in Annex 4.

212. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1):

Risk Risk Risk Minimization MeasureRating

Component I Risk identified at preparation has been reduced although it still exists. Seminars andProject entities might focus on M workshops have helped to clarify the need for project entities to focus on implementingequipment purchase to the detriment of reforms. Monitoring by FILO with assistance from the HEAP would comprise keyimplementing reform objectives. experts/specialists who would provide an important guiding function in the various

discipline areas ensuring an integrated approach to reform activities.Component HI Project universities have developed partnership programs, working cooperatively withDeveloping and sustaining productive M teams from partner institutions. Building consensus was an important element duringlateral relationships with partner preparation.institutions in poor areas linked closelywith ensuring adequate levels of Previous lateral interactions have been based to some extent on income generation (feescounterpart funds for partner institution for training, sharing of equipment). More recently the 'hand by hand' policy hasactivities encouraged more professional, collegial relationships. Both MOE and project

M universities are committed to identification and use of counterpart funds. ProjectUniversities have allocated 5 percent and more of total project cost to this component.

Component IffCompetitive funding mechanism as N Dialogue initiated during identification and preparation mission highlighted support forbasic principle for awarding contracts this approach at senior official level (including Vice-Ministerial level). This wasfor textbook and instructional materials confirmed at pre-appraisal with MOE developing a set of guiding principles for thisdevelopment activity and the MOE proposal at appraisal provided guidelines for the process and a

time-bound scheme of action.Systemic difficulty of initiating and MOE commitment as well as that of the core group of experienced leading universitiessustaining lateral relationships among M would support this initiative. Support for improving communication through improvedproject universities (and others) technology is evident from proposals and funding commitment.

Number of candidate institutions still At workshops & seminars with all participating institutions during preparation mission,convinced that loan/credit funds (which Bank team shared wealth of international experience citing universities they are familiarwould have to be repaid) should result S with. MOE high-level and operation level commitment has helped to a large extent to re-in concrete assets, i.e. in this case orient thinking and finalized proposals demonstrate this re-orientation.equipment. 'Soft' elements should notfigure in Bank project.

Y2K awareness in both project M MOE has stressed that the document regarding China's National Program for Y2K issueduniversities as well as partner by the Ministry of Information Industry has been disseminated among the institutionsinstitutions under MOE's jurisdiction. The Bank's pre-appraisal team confirmed that project

universities are aware of the issue. However, there needs to be greater emphasis andcoordinated action on the Y2K issue. The Bank team has urged MOE to continue itsefforts to raise awareness and assist the participating institutions to develop action plansto address the issue.

Overall Risk Rating M _Risk Rating -H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

G. Main Loan Conditions

* The Borrower shall maintain the FILOIMOE and the PlOs at the institutional level, and the HEAPthroughout the project.

* MOE shall furnish to the Bank, an annual action plan for review and approval no later than November I eachyear.

* MOE shall prepare and furnish to the Bank an Annual Progress Report no later than April I each year, withformat and monitoring indicators agreed with the Bank.

* The Borrower shall furnish to the Bank two six-month Project Management Reports no later than May I andNovember 1 each year using agreed formats.

* The Borrower shall furnish to the Bank, no later than June 30 each year an Audit Report acceptable to theBank.

22

MOE shall, no later than March 31, 2002 carry out a Mid-term Review (MTR) of theproject in accordance with agreed Terms of Reference (TOR) and furnish the Bank theMTR report within 3 months thereafter.

H. Readiness for Implementation

The series of workshops at the national level, and site visits during project preparation and pre-appraisal phase, have ensured that MOE, project universities as well as partner institutions arefully conversant with the details of project design and the elements of the proposed reforms.Project design was based on information sharing, exchange of views, and wide consultation. Keymembers of the Bank and MOE Task Teams have prepared and implemented previous Bankprojects and their experience provides a strong foundation for the implementation of theProject. It has been agreed that during the Project Launch Workshop planned for July 1999,implementing agencies would receive complete details about project procurement,disbursement, financial audits and other Bank stipulated procedural requirements to reinforcethe various aspects of project implementation. An agreed manual for financial managementrules has been distributed to all Project universities. Action plans for 1999 have been reviewedand accepted. Procurement plans for the first ICB are well in hand as are training plans forstudy tours and project management.

I. Compliance with Bank Policies

This project complies with all applicable Bank policies. These include: (a) A financialmanagement system review in keeping with OP/BP 10.02 (section C.4[iv]; Annex 7); (b) Athorough procurement review (section C.4[vil; Annex 8); (c) Financial and economic analyses toensure feasibility and sustainability of the Project (section E.2; Annex 4); and (d) A socialassessment study to confirm that project design incorporates stakeholders' views on highereducation reform (section E.5).

Tat k Team Leader/Tas Manager: Hena Mukherjee

Sector Manager: Alan Ruby

Co ry Director: Yukon Huang

23Appendix A

CHINA: HIGHER EDUCATION REFORM PROJECT

Criteria for Selection of Project Institutions

Overall targeting guideline:

Universities were selected based on strong partnership programs with poorer institutions or be willing to form andsustain such partnerships: programs were defined to meet project objectives

External to the Institution:

I+ Location in a poor province

+ Location under a poor Ministry

+ Geographical spread of universities in a given province

Specific to the Institution:

+ Quality of the Strategic Plan and the extent to which the project is related to it+ Existence of time-bound action plans to remedy deficiencies+ Ranking on an efficiency scale (SSR's, support staff ratios, equipment use, resource sharing)+ The lack of a computerized library+ Participation in local partnerships (HEIs or industry)+ Track record in dissemination of teaching practices, new curriculum content or management ideas+ Academic climate: eg., relative number of staff working on higher degrees, research and publications

activity, scale of academic exchanges internationally+ Connection to CERNET (China Education and Research Net)

+/- Scale of income generated, related to location

- Receipt of funds under previous Bank-financed projects- Receipt of additional funding allocations from domestic projects

1 '+' signifies a positive weighting for the factor indicated and '-' a negative weighting while '+/-' could go eitherway. For example, it would be negative for a university located in a thriving economic environment with a high levelof university-generated income and positive for a university located in a poor province with few opportunities togenerate high levels of revenue.

List of Project & Partner Institutions

Project Institutions Partner InstitutionNo. Name l Location Jurisdiction Name Location Province

01 Beijing Univ. Beijing MOE Inner-Mongolia Univ. Hohhot Inner-MongoliaNational Sci. &

02 Beijing Aeronautics Univ. Beijing Industry Comm. Guizhou Industry Univ. Guiyang

03 Beijing Sci. & Tech. Univ. Beijing MOE Baotao Iron & Steel College BaotaoNational Sci. &

04 Beijing Inst. of Tech. Beijing Industry Comm. Yan'an Educational College Yan'an Shaanxi

05 Beijing Normal Univ. Beijing MOE Northwest Normal Univ. Xi'an ShaanxiMinistry of Public

06 Beijing Medical Univ. Beijing Health Inner-Mongolia Medical College Hohhot Inner-Mongolia

07 Dalian Univ. of Tech. Dalian MOE Dalian Nationalities Inst. Dalian

08 Southeast Univ. Nanjing MOE Yancheng Engineering College Yancheng Jiangsu

09 Fudan Univ. Shanghai MOE Yunnan Univ. Kunming YunnanNational Sci. &

10 Harbin Inst. of Tech. Harbin Industry Comm. Heilongjiang Mineralogy College

11 Huazhong Inst. of Tech. Wuhan MOE Hubei Three Gorges Inst.

12 Jilin Univ. Changchun MOE Jilin Normal College Changchun Jilin

13 Jilin Univ. of Tech. Changchun MOE Yanbian Univ. Jilin

14 Lanzhou Univ. Lanzhou MOE Lanzhou Railway Inst. Lanzhou

L

Location and Province information to be provided by Ministry of Education at negotiations.

Project Institutions Partner InstitutionNo.

Name Location Jurisdiction Name Location Province

Qinghai Normal Univ. Qinghai

________________ ________________ Ningxia Univ. Ningxia

Xinjiang Univ. Urumqi Xinjiang

15 Nanjing Univ. Nanjing MOE Guangxi Normal Univ. Guilin Guangxi

16 Nankai Univ. Tianjin MOE Yunnan Normal Univ. Kunming Yunnan

17 Qingdao Ocean Univ. Qingdao MOE Liaocheng Teacher's College Liaocheng

18 Tsinghua Univ. Beijing MOE Yunnan Univ. of Industry KunmingBaoji Inst. of Liberal Arts &

19 Shaanxi Normal Univ. Xi'an MOE Engineering Baoji

20 Shanghai Jiaotong Univ. Shanghai MOE Xinjiang Univ. Urumqi Xinjiang

21 Sichuan Univ. Chengdu MOE Xichang Agricultural College Xichang

22 Tianjin Univ. Tianjin MOE Inner-Mongolia Polytech. Univ. Hohhot

23 Wuhan Univ. Wuhan MOE Yunyang Teacher's College YunyangNingxia Northwest Second

24 Xi'an Jiaotong Univ. Xi'an MOE Minorities Inst.

25 Zhejiang Univ. Hangzhou MOE Anhui Univ. Hefei Anhui

26 China Univ. of Sci. & Tech. Hefei China Academy of Anhui Normal Univ. Wuhu AnhuiScienceState Bureau of

27 Mining & Tech. Univ. Xuzhou Coal Industry Xuzhou Vocational Univ. Xuzhou JiangsuMinistry of Rural &

28 Chongqing Chongqing MOE Chongqing Architecture Univ. Chongqing Urban Construction

EnvironmentProtection

26Annex 1

China: Higher Education Reform ProjectPROJECT DESIGN SUMMARY

Narrative Summary Key Performance Indicators Monitoring and Critical AssumptionsEvaluation

A. Sector-related CAS Goal: (Goal to Bank Mission)

Relevance to growing technology- There are no 'disconnects'based market economy between CAS objectives

and the Bank mission

B. Project Development Objective: (Objective to Goal)

Quality and relevance of B. 1 75% of project universities B. 1. I Annual Reports, There is both understandingundergraduate basic science and (PUs) and partner institutions (Pls) MOE/HEAP/ lAP/Bank of and agreement on theengineering programs improved use the curricula reviewed/renewed on site visits and mid- characteristics of integrated

mechanism on a regular basis by term review and project reform activities and theEOP. completion review development of proposals

by PUs and Pls based onsuch understanding ensuresownership.

B.2 75% of institutions have B.2. 1 As Aboveadopted and implemented relevantreform programs by EOP.

B.3 75% of previously identified B.3. 1 As AboveTeaching/learning/ management goodpractices used by PUs and by at least70% of Pls by EOP.

C. Outputs:

I. Curricula reviewed and developed C. 1.1 75% of courses restructured in C. 1 .1. Documents from C. I New skills are used interms of content, instructional the University Curricula accordance with reformmaterials and teaching approaches on Committee plans.a regular basis/annually by EOP

2. System for updating curricula C.2. 1 100% of review committees C.2. 1. Records of C.2 MOE/ Institutionsestablished Established by the end of project Committee meetings continued commitment to

Year 1. reform agenda.

3. Staff updating & training program C.3.1 90% number of university and C.3.1 List of C.3 Administrativedesigned and operational MOE managers trained in relevant participants structure facilitates

reform subjects by EOP replication/C.3.2 90% of academic staff trained C.3.2 As Above Adaptation of reformsin relevant subjects and teachingmethodologies by EOPC.3.3 90% of lab managers/ C.3.3 As AboveTechnicians and librarians trained inrelevant technical areas by EOP

4. Cross institutional collaborative C.4. 1 28 sets of partnerships between C.4. I Document ofpartnerships established PUs and Pls established and agreement

operational by end of project year IC.4.2 At least 70% of the C.4.2 Stakeholderpartnerships achieve their program Workshop (mid-termobjectives by EOP review and end of

project) ;

27

Narrative Summary Key Performance Indicators Monitoring and Critical AssumptionsEvaluation

C. Outputs (contd/-):5. Capacity building program C.5.1 75% of textbooks, electronic C.5.1 As Above C.5.1 New skills are useddesigned and implemented management/teaching materials in accordance with reform

produced, tested and made available plans.for distribution by EOPC.5.2 A graduate tracking system C.5.2 MOE/ Institutions(tracer study mechanisms), an continued commitment toinstitutional evaluation system, a set reform agenda.of financial indicators are tested in xnumber of institutions and results C.5.3 Administrativedisseminated among PUs & PIs structure facilitates

replication/Adaptation of reforms

6. Good practices in teaching/ C.6. 1 50% of good practices in C.6. 1 As Abovelearning and management identified Teaching/learning/management

identified are disseminated by mid-term review and 80% by EOP

7. Infrastructure upgraded C.7.1 60% labs and experimental C.7.1 Progress reportsCenters restructured and upgraded on procurement(equipment) by mid-term review and (FILOIMOE)90% by EOP

D. InputsReform activities under followingthree components:

Refer Appendix 1. I to 1.4 of this PUs, Pls, FILO/MOE, D. I Financial and material1. Achieving improvement in Annex for details. assisted by HEAP, all resources are available on

teaching and learning. with annual reporting time.2. Using partnerships and networks responsibilities. D.2 Counterpart funds are

to spread reform. available in a timely3. Supporting institutional capacity manner.

for change. D.3 Continuity of keyimplementation staff.D.4 New equipment isAn integrated part of thereform.

Appendix 1.1: Project Performance Indicators for UPs'

Project University 1997 1999 2002 2004Planned Actual Planned Actual Planned Actual Planned Actual

Ratio of Master Degree HoldersAmong Full-time Faculty2

Ratio of Doctoral DegreeHolders Among Full-time Faculty3

Ratio of Students to Full-timeFaculty

Ratio of Students to Total Staff

Ratio of TTTBC4

Ratio of TAP5

Number of Updated Courses

Number of Updated &Developed Titles of Textbooks

Ratio of CWRE6

Ratio of OSB7

Annual borrowed volumes

'Project universityThis is based on Table 7: Project Effective Indicators (I) in project university proposals.

2 The ratio should not be repeated in 2.3 See note 1.4 Cumulative number of teachers trained for basic courses.5 Cumulative number of trained administrators6 Courses with reformed examination.7 Open shelve books.

Appendix 1.2: Project Performance Indicators for PU Laboratories'

Name of Project Year Ratio of REI8 Ratio of Majors Served Students Served Total Hours AOSIL PersonUniversity LUSER9 Open Per Week '°/Hours/Per Year

Name of Lab Center Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual1997

Basic Physics 199920022004

Basic Environmental 1997Chemistry 1999

20022004

Basic Environmental 1997Biology 1999

20022004

Basic Mechanics & 1997Machinery 1999

20022004

Engineering Training 1997199920022004

Electronics & Electricity 1997199920022004

Electronic Information 1997Science 1999

20022004

Multimedia Network 1997199920022004

Language Laboratory 1997199920022004

This is based on Table7: Project effective Indicators (II) in project universities proposals8 Cumulative Number of Renewed Experiment Items9 Labs. Up to Safety and Environmental Requirement° AOSIL: Admission of students in labs.

Appendix 1.3: Project Performance Indicators for Pls''

Project University 1997 1999 2002 2004Partner UJniversity Planned Actual Planned Actual Planned Actual Planned Actual

Number of TeachersTrained for PI (long-term)'2

Number of Teachers TrainedFor PI (short-term)

Number of StudentsServed for Experiment/Practical Work

Value of equipment13Donated

Number of TeachersDispatched for Lecture

Number of UpdatedCourses in P1

Number of UpdatedTextbook Titles in PI

1 Partner Institution12 Degree training is included.'3 Each project university is asked to choose a minimum of four of the columns to fill in.

Appendix 1.4: Project Performance Indicators for NTA'4

Project University 1997 1999 2002 2004Partner University Planned Actual Planned Actual Planned Actual Planned Actual

Project ManagementTraining

Number of Staff Trained

Curriculum Reform &Textbook Development

a. Number of ResearchStudies Completed andDisseminated for CurriculumReform

b. Number of TextbooksDeveloped

Number of Study ToursCompletedNumber of DisseminationPost-tour WorkshopsConducted

Number of StudiesCompleted'5 and findingsdisseminated

Student Loan Pilot'6 2002 2004

Number of ApplicantsDisaggregated by gender

Number of BeneficiariesDisaggregated by gender

Amount Disbursed Annually

Amount of Repayment Annually

14 National-level Technical Assistance' Monographic stuides.16 Student Loan Pilot Scheme at Lanzhou University

32

Annex 2

CHINA: HIGHER EDUCATION REFORM PROJECTProject Description

Component 1: Achieving Improvement in Teaching and Learning (Base Cost: US$84.0m)

This component would enable Project Universities (PUs) to introduce a series of reform measures toimprove the quality and relevance of science and engineering programs through restructuring thecurriculum, reduction of narrow specializations, and the introduction of integrative interdisciplinarycourses. The effectiveness of the learning and teaching process would be improved by adoptingstudent-centered strategies, and making the laboratories, computer facilities and the library servicesmore readily accessible. The component would also enable institutions to acquire new equipment forfirst and second year science and engineering programs and to establish "integrated" experimentalcenters where reforms in laboratory experiments would be introduced, including open-ended anddesign-oriented projects. The component is designed with the aim of satisfying frequent demandsfrom industrial employers for university graduates who are more creative and practical, who are betterable to work in teams, and who have a broader knowledge base.

The overall objectives of the component would be achieved through four sub-components:

(a) Restructuring ofAcademic Programs: The systematic restructuring of academic programsand the continuous development of their curricula is the cornerstone of any sound reformstrategy. The proposed elements of this sub-component include initiatives related to ensuringthe relevance of programs and curricula, and others related to the restructuring of programs:

(i) Improving the relevance of academic programs and curricula. Decision-making inconnection with the restructuring of university science and engineering programsrequires insight into the links between education and job performance. These links maybe revealed by monitoring employers' opinions about the relevance of the graduates'knowledge and skills as well as the graduates' own assessment of the quality andrelevance of their education. During discussions with individual universities it becameclear that many had developed commendable feedback mechanisms from the graduatesof science and engineering programs and their employers. With the increasingavailability of e-mail such mechanisms can be further improved and may easily coverthe whole world. Strengthening alumni organizations, including the establishment of analumni database, alumni newsletters and alumni internet web sites may further improvethe feedback. Finally, creating or strengthening external and industrial advisorycommittees or boards for each program to provide advice on the relevance of theprogram and curriculum may facilitate access to employers' experiences.

(ii) Supporting continuous curriculum development and improvement. The continuousimprovement of the curriculum for each program may be supported by the establishmentof program-specific curricular development and improvement committees and byemphasizing the feedback link between inputs (from students, graduates and employers)and strategic curricular improvement decisions. In order to provide time for this task,curriculum development must be accepted as an integral component of teachingfaculty's workload. Finally, input on the most recent development within each fieldmay be achieved by improving the link between research and teaching in the first twoyears of undergraduate science and engineering programs.

33

(iii) Restructuring of academic programs. There was widespread agreement among the PUsthat the formal program content in science and engineering programs had to bebroadened and reorganized. In particular, a strengthening of the practical aspects andthe fundamental concepts within each subject would be necessary. This might befacilitated by a reduction of the number of specialized programs as well as the amountof formal, scheduled hours.(especially lectures) in each program that would providestudents with time for individual and group learning. Important actions in thisconnection are:

* Strengthening the "applied" aspects of academic subjects, in particular by allowing moretime (and freedom) for the students in the laboratory.

* Introducing "integrative" interdisciplinary courses. Typical examples of such courses inthe first two years of academic programs would be Engineering Science orEnvironmental Science.

* Monitoring the need for general education courses and strengthening the most relevant ofthese, for example management of technology, economics, international trade, andforeign languages.

* Improving the horizontal and vertical integration among course and introducinginterdisciplinary employer-supported projects in science and engineering programs.

• Establishing a process of self-evaluation of the academic programs' structure andcontents using prevailing international standards.

(b) Reforming Learning Strategies: Reforms of learning/teaching processes starting withcurricular development include support to teaching staff; evaluation of teaching reforms anddissemination of outcomes to other universities; and integration of new equipment withreform approaches to learning and teaching. The actions taken or planned include, forexample,

(i) A shift from teacher-centered to student-centered learning strategies. In terms ofimproving the learning processes, essentially all universities have stressed the importanceof a transition from teacher-centered to interactive student-centered learning strategies.One important component of this transition is the introduction of student group work that,among other positive outcomes, is likely to improve the "social skills" of the students.Most students today are from single child families. This may explain why employers inrecent years have noted a frequent lack of such skills among young university graduates.As regards support to teaching staff, while the students are likely to applaud most of thechanges in curricula and learning strategies, the reforms would place a heavy load onmany university teachers. It is therefore important that relevant incentives such as annualrewards for excellence in teaching be provided. In terms of evaluating the reforms, manyuniversities have reported that they either have had to put in place or were planning astrengthening of continuous peer and student evaluations of curricula and theteaching/learning performance of faculty. Peer evaluations are usually expected to beperformed by the university's own staff or by retired professors. It might, however, beworthwhile considering an "external examiner system" by inviting academic staff fromother PUs to take place in the evaluation. This might greatly enhance the exchange ofexperiences among PUs. Similarly, it is important that studies of the outcomes of thenew pedagogical experiments (in comparison with traditional methods) be carried out

34

and disseminated so that all PUs, as well as other Chinese universities can benefit fromlessons learned.

(ii) Improvement of the quantity, quality, and relevance of laboratory experimental work,supported by an improvement of laboratory equipment and safety. Since the Projectplanning stage, this aspect has been considered a key to success. Student access tolaboratories should increase, and the quality of laboratory equipment must be improved,and the relevance of laboratory experiments and projects are enhanced by integratingthem in the reformed curricula. Another important improvement would be obtained bychanging the balance between directed, "verifying" and/or repetitive experiments, oftenconsidered to be boring by students, and open-ended, design-oriented projects in thelaboratories. The provision of new equipment is a necessary condition for the successfulupdating and expansion of student laboratory work. In many cases this may provideimportant incentives to academic staff who would have to work very hard in order toensure the successful implementation of the reforms. Issues which surfaced duringdiscussions with project institutions:

* In many cases the new equipment would be placed in new buildings (financed within thescope of the Government's Project 211 plan or through other university-generatedincome) or in refurbished laboratories. It is important that the infrastructure is in placeprior to the delivery of equipment.

- Use of planned new equipment would be straightforward for responsible university staff.Proper training must therefore be provided to the relevant staff, prior to the delivery ofequipment. In many cases equipment suppliers may provide such training at no cost.

- It is expected that in numbers, most equipment would be produced in China. Based onearlier experiences among PUs, the balance in value between indigenously produced andforeign equipment may be more even. However, it must be kept in mind that earlierprocurements primarily covered more specialized research equipment and that Chineseinstrument producers have made considerable progress in recent years.

- Many Chinese universities have strong traditions in producing indigenous teachingequipment. In some, but not all, cases such home-produced equipment is bothpedagogically better and/or may be produced at lower costs than comparable commercialinstruments. In addition, locally produced equipment is easier to service and maintain. Itis important that the opportunities in this connection are fully utilized, even if localproduction must be funded by sources other than the Bank loan.

(iii)Laboratory Safety and Environment. Earlier, laboratory safety and environmental issuesreceived limited attention in many Chinese university laboratories. Although it was oftennot clear from the proposals (partly because the costs would be covered by othersources), many universities had already initiated considerable improvements with respectto laboratory safety and environment. The environmental and safety practices whichstudents are exposed to in their laboratory work are an essential and increasinglyimportant part of their education. These issues, therefore, must be properly dealt with inall laboratory instructions and manuals, and laboratory safety as well as the handling anddisposal of hazardous chemicals must be up-to-date in university laboratories. Theseissues often are an integral part of proper laboratory modernization. The introduction of"microscale" techniques in chemistry and some biology laboratories may not onlyincrease safety and reduce environmental risks, but may also lead to substantial savings

35

in the budget for chemicals. Several PUs are now in the process of adopting thistechnique.

(iv) Reforming student examinations through the introduction of more student-centeredtesting and evaluation strategies. An important change that has already taken place inmany PUs is the adoption of a flexible course credit system that simplifies testing andevaluation of students' academic performance. Many universities are also presentlyengaged in reforms of the testing and examination system within individual courses tomake them more learner-centered, continuous and flexible. The difficulty in performingindividual evaluations of students engaged in group work is by many considered a severeobstacle to a further increase in student group projects. An exchange of experiences inthis area between PUs may be needed.

(c) Improving learning opportunities and conditions: Students' learning environment would beenhanced to allow for greater self-directed learning through the provision of appropriatelearning-support services and conditions; and textbooks and other instructional materials(including CAI [computer aided instruction] materials) would be improved and updated.Improvements in the learning environment for individual students may provide essentialsupport for the reforms. The Project aims to improve the environment for self-directedlearning and to enhance learning-support services.

v Improving and updating textbooks. PUs have plans for extensive textbook renewal insome cases also of similar material (e.g., CAI) in electronic form. Some science andengineering subjects are changing fast and require regular updating of curricula andtextbooks; the reforms makes such updating even more necessary. However, productionof good textbooks for first and second year students is not a simple matter and it wouldbe wasteful if it is repeated at all PUs. The MOE could play an important role in thecoordination and quality assurance aspects of textbook production.

- Improving the environment for self-directed learning. Essentially all PUs are in theprocess of reducing the amount of time students spend in traditional lectures, typically by50-100 hours per year, in order to increase the time available for self- and group study.These efforts may be further supported by extended access to computer facilities andlibrary resources and by increasing the availability of computer-based course support inindividual or internet modes for individual learning. Furthermore, in order to improvethe applied aspects of the studies, efforts are being made in the majority of the PUs toprovide more open access to laboratories. This would be even more valuable after theyacquire improved equipment.

• Improving learning-support services. Some universities have already started to conductseminars and workshops facilitated by pedagogical experts to assist students and facultyin improving the learning/teaching processes, or have already established open-access"leaming" centers staffed by junior faculty and senior graduate students to provideassistance and support to students. All PUs plan to use a portion of project funds toincrease library holdings of modem, relevant textbooks, journals and periodicals.Finally, most universities are planning to increase the availability of computers andaccess to CERNET and similar networks, the Internet, and other computer-based learningresources.

(d) Upgrading teachers and staff to support the reforms: Continuous training and exchange ofinformation among academic staff within and across universities including those overseas inorder to assist in the adoption of new learning strategies. Training would be provided in the

36

form of seminars, short-term and long-term programs and overseas study tours whereappropriate. Upgrading of academic and support staff in classrooms, laboratories, and otherlearning facilities is essential to ensure positive outcomes of the reforms.

* Adopting new learning strategies. Faculty knowledge and skills within newlearning/teaching and evaluation methodologies may be improved by designing anddelivering an on-going series of courses, workshops and seminars by learning experts inthe field. Similarly, an exchange of experience between PUs may be invaluable. In this,as well as in other connections, the widespread tradition of inbreeding (hiring of owngraduates) within Chinese universities in unfortunate. For practical purposes, peoplerather than journals and networks are more efficient in imparting experience andknowledge relevant to higher education.

* Training for laboratory staff Laboratory administrators, teaching staff and laboratorytechnicians would benefit from targeted courses, workshops and study tours, both inconnection with planned new equipment and the need for improved laboratory safety andenvironment. Overseas visits may be helpful for laboratory administrators who can thendisseminate experiences within China. Domestic study tours and workshops may berelevant for others. It may be worthwhile to negotiate training for equipment suppliers.

Component 2: Using Partnerships and Networks to Spread Reforms (Base Cost: US$S5.3m)

This component provides for the linking of a PU with a less-developed partner institution which isusually located in a poor, less accessible area to share the benefits of project investments in physicaland human resource development, and to widen the impact of the proposed higher education reformsinitiated in the PU. The partnership linkages and programs are well defined. Collaborativearrangements jointly developed by Project Universities and their Partners have been reviewed andaccepted. Through this component, the project would have significant multiplier effects which wouldbring the benefits from the reforms to be implemented to more institutions.

The 28 PUs would assist in the development of their poorer Partner Institutions (PIs) by disseminatingthe reforms implemented by the project institutions and sharing the good practices in curriculum andacademic course and program development as well as improved teaching-learning strategies in basicscience and engineering courses. Details of possible good practice for the partner relationship aregiven in Appendix B

An overall program along with annual action plans would be designed jointly by the institutions andsubmitted to MOE. The core elements of a partnership arrangement would be:

(a) training PI staff for higher degrees (M.Sc. or Ph.D.) and/or courses in science andengineering content and teaching methods;

(b) training and/or exchange of students between institutions to participate in teaching/learningprograms and generally for the PIs to use the better equipment and teaching/learningresources of the PUs;

(c) sharing of resources, reforms in curricula, and teaching/leaming methods, and good practicein institutional management, including the development and use of computerized systems inadministration; and

(d) development and use of electronic teaching/learning materials and routine electroniccommunication between teaching staff and students through CERNET and other networks.

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For quality improvement in reforms, the Higher Education Advisory Panel (for details aboutresponsibilities (see Appendix A) would visit selected PIs during project implementation while afeedback mechanism (using survey instruments such as questionnaires) would be developed.

As an incentive to PUs, MOE would recognize on an annual basis, the best performing PU under thefollowing five categories of partnership activities: (a) sharing of facilities (classrooms, laboratoriesand workshops, libraries and multimedia centers); (b) staff training (lecturers, laboratory technicians,librarians, administrators); (c) joint research and development programs; (d) technical assistance(planning laboratory facilities, MIS development and installation, library management, etc.); and (e)donations (equipment, software, publications).

Expected outcomes: While the standard of laboratory equipment in the partner institution is usuallynot the same as that in the PU, it is nevertheless expected that PU staff would be able to help thepartner to adapt the new teaching methods which they develop under the Project. Although therewould be limited potential for new experiments to transfer to the partner, new teaching methods wouldbe expected to be transferred more easily.

Component 3: Supporting Institutional Capacity for Change (Base Cost: US$4.3m)

Activities under this component, which would be implemented by MOE, are designed to strengtheninstitutional planning and administration and central coordination. The component comprises overalloversight and monitoring of project implementation, centrally-coordinated study tours andworkshops/seminars organized by the Technical Assistance Division of FILO, a program of researchto support policy development, and a program of activities to update the design of courses of study,develop textbooks and electronic materials. The last two will be spearheaded by the Higher EducationDepartment of MOE in collaboration with experts from universities. The Higher Education AdvisoryPanel (HEAP), which will assist FILO in monitoring and evaluating the entire Project, would have aparticularly important role to play in this component. They will also be active in assisting FILO inmonitoring the Lanzhou University Study Loan Pilot.

I. National-level Technical Assistance Activities. There will be two main categories of projectactivities. The first will focus on three groups of staff training: project management, financialmanagement, and equipment procurement management. The second would deal with study tours andfollow-up dissemination seminars. Each training group involving 84 trainees would participate inthree training sessions, each of 4 days duration scheduled to take place in the second half of 1999,2001 and 2003. The objective and content of training personnel are as follows:

A. Staff Training:

(a) Project Management Staff: Objective is to enhance the management capacity of all levels ofstaff responsible for implementing the project to ensure efficient use of the loan/credit fundsand success in reaching project targets. Training content: (i) Project objectives, contents andindicators and lessons from previous Bank-funded education projects; (ii) responsibilities andtasks in all relevant units to facilitate effective project management; and (iii) Data collectionand annual progress reporting.

(b) Financial Management Staff: Objective is to regulate the financial accounting and loan/creditwithdrawal procedures by defining project expenditures and strengthening the supervisionand review of financial management. Training content: (i) Bank disbursement andreimbursement regulations and procedures; (ii) Basic requirements for project auditing; (iii)Responsibilities and tasks of each relevant unit in project financial management; and (iv)

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Exchange of experience and lessons learned between and among former Bank-financedproject universities.

(c) Procurement Management Staff: Objective is to familiarize staff with the procedures andrequirements for procurement and quality guarantee of goods procured. Training content: (i)Procedures and requirements for procurement under ICB, NCB and prudent shopping; (ii)Preparation of equipment lists and bidding documents; (iii) Procurement process fromadvertising to contract signing and implementation; (iv) Domestic and Bank approvalprocedures; (v) Equipment use and maintenance.

B. Study tours and related workshops

MOE is scheduled to organize 21 study tours in 5 key thematic areas. Each tour would havedefined/specific terms of reference, objectives and anticipated outcomes, countries identified andinstitutions to be covered, criteria for selection of participants who would most benefit frominstitutional and national objectives under the Project, and a post-tour report. The report would assessthe extent to which tour objectives have been achieved and how disseminated.

With regard to the study tour dissemination workshops, their objectives, content and methodologywould be carefully integrated to ensure that there is sufficient learning material (collected from thestudy tours) and maximum group discussions and, where appropriate, hands-on practice with CAImaterials. Each workshop would have a summary of the discussions and recommendations and a planfor follow-up on the recommendations. Guidelines and sample terms of reference for workshops andstudy tours are available in the project document file.

The study tours and dissemination workshops would be complementary and carefully integrated tomaximize their learning impact. A clear methodology of how to strengthen the linkage and make bothactivities more effective to the success of the tours and dissemination workshops would be understoodand shared by MOE, the PUs and PIs. The study tours would be planned in advance to help ensurethat project implementation brings real benefits to the project institutions. FILO's TechnicalAssistance Division has started working on identification of suitable locations for the study visits.

Documents from the study tour and the impact of the tours would provide important information forFILO's evaluation at mid-term and implementation completion. Following is an outline of thetraining program under this section:

(1) University Presidents (31 participants)Objective: Reform of institutional management and implementation of Teaching Reform.Duration of Training: 15 days

(2) Director of Teaching Affairs Division (31 participants)Objective: Reform of curricula, textbooks, teaching methods and examination system reform at

institutional level.Duration of Training: 15 days

(3) Director of Finance Division (31 participants)Objective: Improving financial management.Duration of Training: 15 days

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(4) Director of Equipment Division (31 participants)Objective: Reform of laboratory management (improving environment protection, utilization of

instruments and equipment)Duration of Training: 15 days

(5) Chief of Experiment Center (124 participants)Objective: Reform of laboratory teaching and managementDuration of Training: 15 days

Details of study tours and dissemination workshops are in the Project Implementation Plan (PIP) andin the MOE proposal for Component 3.

II. Policy-based research studies. MOE has identified six research activities to be supported bythe Project, focusing on the following themes:

* development of a system for quality assessment in higher education* establishment of a textbook renewal mechanism appropriate for a socialist market economy* managerial autonomy of institutions under legislation* development of a graduate tracer studye comprehensive assessment of financial management in higher education institutions

Details on each of the above research areas are available in the PIP.

III. Textbooks and Electronic Materials. One of MOE's key roles would be to coordinatetextbook reform and development activities and ensure adequate dissemination of the most innovativeresults to all universities in the country. MOE plans to produce 400 textbooks on 200 basic coursesfor use in universities which would include those not covered by the Project with the aim of spreadingreforms beyond PUs and partners. The design of the textbooks would, in each case, be preceded by aresearch project looking at the national human resource planning needs in 100 subject areas andtesting a series of experiments where relevant. In this way MOE intends to extend project impact tothe vast majority of non-project and poorly-performing Chinese institutions.

Where textbook renewal mechanisms are concerned, MOE would identify continuous and affordablemechanisms, independent of intermittent injection of external funding. The process of textbookdevelopment would be based on competitive proposals from applicants throughout the country whowould have to go through a selection process, based on a set of pre-determined criteria. By using sucha mechanism, MOE expects to improve the quality of outputs while working towards changing theculture of authoritarian assignment towards one of more open competition. Universities in China haveflexibility in textbook development and selection; textbooks are produced by MOE, goups ofuniversities and individual universities. The likelihood of weak poor-performing institutions usingMOE developed textbooks is high largely due to the fact that they do not all have staff trained/skilledin textbook selection.

The development of management and teaching software would be split into two distinct activities.Management software would fall under the overall MIS development activities of MOE and thevarious universities, while the development of teaching software would be more closely associatedwith the activities supported under the first component of the Project (curriculum reform andimprovement of teaching practices).

IV. Student Loan Pilot Scheme for Lanzhou University. This pilot program is a study that is notfunded by the Bank or the Borrower. With a PHRD Grant of US$ 100,000 to Lanzhou University, thispilot student loan scheme would offer an alternative to the existing loan scheme. The objectives are

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to: (a) develop a revolving fund for student financial assistance by making interest-bearing loanswhich are repayable within 5 years after graduation; (b) test student preference between the schemeand the existing scheme which offers interest-free loans that are repayable before graduation, and tocompare the characteristics of these two groups of borrowers; and (c) build-up institutional experiencein managing a revolving fund and tracking repayment.

The Lanzhou University Students Affairs Unit, which handles the existing loan service, wouldadminister this pilot scheme. The University's MIS would record all the characteristics of loanapplicants and recipients, based on selected monitoring indicators. It would also record the pattern ofrepayment and default of both the pilot and existing schemes in order to build up a database forcomparison and policy analysis. The Student Affairs Office of Lanzhou University would reportdirectly to the University FILO which would present an annual report on the pilot scheme as part of itsconsolidated report on the Lanzhou University project financed by the Bank loan, producing aninterim and final report. FILO/MOE will be responsible for monitoring the implementation.

V. Higher Education Advisory Panel (see AppendixA for details). MOE has established aHigher Education Advisory Panel (HEAP) which would support MOE-FILO in monitoring andevaluation of the project. The Panel membership would comprise specialists with acknowledgedexpertise in areas relevant to the project components. The attached Appendix A provides the Terms ofReference for the Panel.

41

Appendix ACHINA Higher Education Reform Project

Higher Education Advisory Panel

Terms of Reference

The target for the Higher Education Reform Project, organized and coordinated by the Ministryof Education (MOE), is to improve the teaching and experimental learning conditions of basic scienceand engineering courses for the project universities and their partner institutions, improve the qualityof teaching staff, expand textbook and curriculum reforms, and raise the quality and efficiency ofundergraduate teaching and learning. For realizing the project target and ensuring the maximumbenefits of the project, the Higher Education Advisory Panel (HEAP) consisting of Chinese expertswill be formed for providing advisory support to project implementation and management. Themembership of the Chinese experts panel was confirmed at negotiations. The list of the eight Panelmembers and their designations are set out in the MOE proposal for Component 3, available in theProject Files.

I. Basic Responsibilities:

Under the authority of the Ministry of Education, and based on the state-approved project plan,the Panel will carry out supervision, monitoring and evaluation of project implementation andmanagement, provide technical support and consulting services for the project universities and theirpartners, and offer advice to MOE for improving project implementation and management. ThePanel's specific responsibilities are as follows:

(a) Supervising and advising on project expenditure, implementation and management ofthe project universities;

(b) Providing advice and technical support for curriculum and textbook reforms, especiallyin respect of undergraduate science and engineering curriculum and textbook reforms;

(c) Monitoring and guiding project partnership programs and giving advice to universitiesfor the dissemination of program achievements and to ensure that partners receive thehelp they need;

(d) Providing technical and consulting support for improving the campus network of projectuniversities;

(e) Ensuring that adequate evaluation takes place; and

(f) developing standard feedback and dissemination mechanisms such as regular projectbulletins/newsletters, for which the Secretariat (see IV)will provide assistance.

II. Main Tasks

The main tasks are as follows:

(a) at least one annual site visit to project universities will be undertaken for supervisionand to provide guidance for project implementation with one written report submitted toMOE. HEAP will ensure that each project university will be visited at least once duringthe project period as well as selected partner institutions;

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(b) at least one annual working meeting will be held for the purpose of making acomprehensive study and summary of the project activities. The annual working planshould be submitted to FILO for examination and approval by the end of every year;

(c) by the end of every February, a working report and an annual evaluation report for thepast year should be submitted to MOE;

(d) at mid-term a conference should be organized jointly by FILO, assisted by HEAP and theBank, for project and partner university representatives. HEAP should provide FILOwith an updated report for the conference;

(e) on project completion, the advisory panel should assist MOE for evaluation of the projectand the final evaluation report will be submitted to MOE; and

(f) HEAP is to assist FILO in all Project oversight and coordination responsibilities. Itwould be desirable for the panel to continue to monitor and evaluate the project beyondthe project period.

Entrusted by the Project Leading Group, FILO will be responsible for the coordination of the activitiesundertaken by the Advisory Panel.

III. Panel Members and Their Qualifications

Panel members must have senior professional titles and considerable experience inundergraduate teaching and management. They must be familiar with World Bank projects or similarproject management procedures. For ease of work, they should also have command of good spokenEnglish. The Panel will be composed of five or seven members with the following specialties:

(a) being familiar with World Bank, or similar project management and implementation;

(b) having higher education teaching and curriculum reform experiences;

(c) having experience of science and engineering teaching experimental work;

(d) having experience of lab equipment, book procurement and management; and

(e) having experience of higher education planning and financial management.

A Panel leader will be elected and panel candidates will be recommended by relevant MOEdepartments. Through consultation between the Foreign Investment and Loan Office (FILO) andother departments involved, the list will be produced and approved by the Panel leader.

Panel members, appointed for a term of five years, should set aside an average of twentyworking days per year for project consulting service.

IV. Secretariat Establishment

For ensuring smooth and high-quality consulting services, a Panel Secretariat will be set up toprovide logistic support and office work assistance. The Secretariat requirements and qualificationsinclude:

(a) The Secretariat staff and the university in which it is located will be decided throughconsultation between the advisory panel and FILO;

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(b) With its head appointed by the Panel leader, the Secretariat will consist of two full-timestaff, and if required, another two or three part-time staff;

(c) Secretariat staff should have a good command of English and sound knowledge of highereducation teaching, and some experience of World Bank or similar project management;and

(d) The Secretariat will be responsible for arranging and coordinating travel andaccommodation for Panel members during Panel site-visits; for keeping effectivecommunications among the Panel, MOE, project universities and Panel members; fordrafting the Panel's annual supervision mission report; and for file management andinformation collection for the Panel members as well as operating, on the Panel's advice,dissemination mechanisms such as newsletters and periodic bulletins.

Prepared by the Ministry of Education, People's Republic of China

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ANNEX 3: ESTIMATED PROJECT COSTS(US$ million)

Project Component Local Foreign Total

A. Achieving Improvement in Effective 45.0 38.6 83.6Teaching & Learning

Staff Training 4.8 4.8Teaching Reforms 3.2 3.2Lab Equipment 19.7 38.2 57.9Books & Library materials 4.0 0.4 4.4Maintenance/parts/consumables 13.3 13.3

B. Using Partnership & Networks to Spread Reform 5.2 5.2

Partnership Program 5.2 5.2

C. Supporting Institutional Capacity for Change 2.9 1.3 4.2

Staff Training 0.1 0.1Study Tours 1.3 1.3Curriculum & Textbook Development 2.2 2.2Dissemination Workshops 0.3 0.3Research & Studies 0.2 0.2

Operating Cost for HEAP 0.1 0.1

Loan Charges 0.2 0.2

Total Baseline Cost 53.1 40.0 93.1

Physical Contingencies 2.7 3.6 6.4Price Contingencies 1.9 2.9 4.8

Total Project Cost 57.7 46.5 104.3

45Annex 4

CHINA: HIGHER EDUCATION REFORM PROJECT

Part I: Economic and Financial Analyses

I . The objective of the Project is to improve the quality and relevance of undergraduate basic science andengineering programs through integrated reform activities in curriculum and teaching/learning methodology. WhileProject investments would be made primarily at first and second year levels, they would provide the impetus forembedding reforms across all four years of undergraduate science and engineering programs. The Project wouldfocus on reforms in curriculum and teaching methodology, and by strengthening planning and management atinstitutional and central, Ministry of Education (MOE) levels, would improve capacity to implement reforms inteaching and learning.

2. The economic analysis for the Higher Education Reform Project utilizes the Bank's checklist of guidelinesfor economic analysis of education project. As part of the preparation of the China: Higher Education ReformProject, analysis was conducted to assess: (a) the potential economic benefit of investment in the quality of highereducation; (b) the fiscal health of the Government and of participating project institutions; and (c) the ability ofparticipating project universities to repay their share of the World Bank loan/credit, the availability of counterpartfunding, and the sustainability of project effectiveness; and (d) whether the operation/Project is financiallysustainable. In addition, the analysis was conducted to determine: (a) the rationale for public sector intervention inhigher education; and (b) the alternatives to the Project. The objectives are to provide some economic justificationfor the focus of the project on educational quality and to enhance the soundness of the financial dimension of projectdesign. Gender equality is not an issue in the Chinese higher education system, especially where total enrollment isconcerned.

l(a) Project Coherently set in the CAS [See Section B (1) of PAD]

3. China's economy is one of the fastest growing in the world. The CAS (China: Country Assistance StrateProgress Report: R98-107 dated May 6, 1998) recommends that an area which needs to be addressed is increasedtraining in those skills necessary to accelerate China's entry into the 21st century's information-based economy (page5. para. 22). The Project directly responds to the CAS recommendation. China's transition from a command to asocialist market economy is increasingly integrating the Chinese economy with the global economy. An integral partof strengthening the economic sectors is to ensure a critical mass of well-trained personnel who are flexible, creative,practical, and adaptable to future technologies and labor market needs, and better able to work in teams.

4. The main economic rationale for the project is linked to improving quality of training in science andengineering to ensure better prepared, flexible and adaptable graduates for the rapid technology-based changes in theeconomy and labor market. In the long-term perspective there would be a complementarity between the need foreconomists and accountants on the one hand, and the more science and technology oriented professionals on theother, and the Chinese economy would need both. Considering the short shelf life of science and technologyprograms, the need for high investments in appropriate equipment, and the accelerating pace of knowledge generationin these areas, it is difficult to identify support for such programs from local sources or bilateral and other grant-giving donor agencies including the UN. The Bank's ability to leverage resources as well as its internationalexperience and familiarity with the sub-sectoral characteristics through previous projects vests in it a comparativeadvantage to assist China in building a sound foundation for science and technology oriented toward the 21 St century.

1(b) Project Coherently set in ESW [See Section B (3) of PAD]

5. The Project is designed within the context of existing and clear directions for sub-sectoral reforms and on thebasis of the findings of an in-depth sub-sectoral analysis China: Higher Education Reform (June, 1997) which wasjointly conducted by the Bank and MOE in cooperation with higher education institutions; lessons leamed fromongoing and completed higher education projects in China; experience from other Bank regions and bilateralagencies; reports from IDF grant activities on curriculum reform; and initial findings from MOE-commissionedresearch studies on curriculum and teaching reform. The Bank's sub-sectoral analysis reviewed and made

46recommendations on the four following areas, jointly identified with MOE's Department of Finance: Relationshipsbetween Universities and the State; Changes in University Management; Financing Higher Education: Diversificationof Resources; and Quality Improvement in Instructional Programs which focused on curriculum and staffing inChinese universities. More specifically, the sector work on higher education reform completed in 1997 showedundergraduate science and engineering programs as among the weakest in the tertiary system. Universities data onemployer feedback show that Chinese industries too have increasingly expressed concerns about insufficientcreativity, practical skills, and ability for teamwork demonstrated by recent university graduates. The Governmenthas placed this level of education at the top of its priority list of higher education reforms. Designed within thiscontext, the Project has been flagged by MOE as the second wave of major reforms, viewing it as an opportunity tocreate a strong, modernized and broadened curriculum content and skills base, helping to prepare graduates for anincreasingly knowledge and technology-based economy.

6. Since curricula at undergraduate level have not been updated for more than a decade, the Project wouldintroduce reforms in science and engineering programs at the undergraduate level, rather than at the graduate levelwhich have already been targeted in the majority of previous Bank-supported higher education projects. Upgradingcurricula and introducing effective teaching and learning modes would raise the quality of education, providingstudents with the skills and flexibility to adapt to changes in knowledge and in the job market. The introduction ofreforms in the higher education system in China follows an established and tested mode: it starts with pilots ininstitutions most likely to succeed followed by dissemination of successful outcomes throughout the system.

7. Keeping GOC's goals in the forefront, the Project would address some of the core issues raised in theprevious section with an emphasis on long-term development outcomes as a basis for strategic choices: (a) Supporttraining and other activities related to continued staff improvement through specific integrated activities; (b)Strengthen capacities at MOE and institutional levels; (c) Introduce textbook and materials contracts based oncompetitive selection/funding mechanism to improve institutional capacity in the direction of sound mechanisms forsupporting quality; and (d) Promote the concept of partnership linkages to provide opportunities for poorerinstitutions to acquire much needed information on curricula, teaching methodologies, examination reforms, MIS,and international university exchanges.

2. Project alternatives [See Section D (1) of PAD]

8. Rationale for public sector involvement: Repayment of Bank Credit/Loan is a fundamental issue in theChinese higher education sub-sector and therefore underlies the rationale for public sector involvement in highereducation. The norm in China is that Government on-lends to public higher education institutions and these in turnrepay MOE over time. If institutions are unable to repay MOE, the parent ministry to which they are affiliated willundertake to repay the on-lent amount to MOE. Non-government institutions do not receive government subsidy orfinancial support from the Government. Moreover, they are not directly affiliated to specific parent ministries as arepublic institutions of higher education. At this time, State policy does not permit on-lending to non-governmentinstitutions.

9. By virtue of educational tradition, quality of higher education institutions is superior in the public domain tothat in the non-government domain. Unlike public institutions of higher education, non-government institutions ofhigher education are typically located in or close to special economic zones. Programs offered in these institutionsare typically short-cycle, non-degree programs specialized and directed to serve industries in the economic zone.Financial support comes from industries, overseas expatriate support and cost recovery (fees). A majority of non-government institutions do not have the financial backing or resources to provide comprehensive science andengineering degree programs. The role of the non-government sector in higher education has, therefore,predominantly been oriented toward short-cycle, adult education institutions at post-secondary levels. They includeradio and television universities, pedagogical colleges, independent correspondence colleges and correspondence orevening courses run by regular higher education institutions.

10. The first non-governmental institution of higher education came about in the early 1990s. As of 1998, therewere approximately 1,274 non-governmental institutions of higher education of which only 22 were accredited. Totalstudent enrollment as of 1998 was approximately 1.3 million. Of these about 14,000 were enrolled in the accredited

47institutions. MOE does not provide any form of financial support to the non-governmental institutions. However, inorder to maintain their accreditation status, non-governmental institutions are required to submit periodic reports toMOE, although actual supervisory jurisdiction of non-governmental institutions rests with the provincialgovernments, not MOE. Accredited non-government institutions are required to comply with strict MOE specifiedstandards for comprehensiveness and quality of higher education.

11. In 1994, these institutions enrolled 2.35 million students on a part-time basis and employed 0.21 million full-time staff (of which 45 percent were teachers) and 0.03 million part-time teachers. About 90 percent of the enrolleeswere in short-cycle programs, and only 10 percent in regular undergraduate studies. Over 800 private post-secondaryinstitutions were in operation (enrolling about 1-5 percent students in addition to those in the regular publicinstitutions). However, only 22 of these institutions were accredited by the government as of 1998. No official datawere collected systematically on private post-secondary institutions until recently. Existing data are insufficient anddo not indicate a large non-government presence in higher education. Non-governmental providers will continue toplay a limited role in higher education for some time until: (a) the quality of education provided by them is on parwith public institutions of higher education; (b) more non-government higher education institutions are accredited bygovernment based on common standards for both public and non-govemment providers; (c) regulation empowersnon-government providers to compete with the public sector in funding and providing quality education suitable forthe emerging labor market needs.

12. Most countries, not only centralized communist states believe in a strong if not predominant place for thegovernment in higher education. In China, typical characteristics of higher education institutions under thecentralized system included: (a) institutional affiliation to a line ministry; (b) undergraduate and graduate programsoriented toward training students in particular areas of study to fulfill central manpower planning requirement; (c)core funding being provided by the then State Education Commission (SEdC) - title now changed to the Ministry ofEducation (MOE), a sponsoring ministry, province or municipality (or a combination of them). More recently,government's move toward rationalizing the higher education system has led to re-consolidation of higher educationinstitutions under fewer line ministries (for examples, see Appendix B of Project Appraisal Document for affiliationsof some universities), and focusing attention on reforms in the quality of education so as to train students for a marketoriented economy. Despite moving toward a market oriented economy, centralized control of higher education inChina will continue for some more time. Reasons such as nation building, developing centers of excellence, andstandardizing the quality of education being imparted to the majority of the student population who will continue tobe enrolled in government-supported higher education, in addition to on-lending policy are the reasons for supportingthe public sector at this time. With emerging market-oriented reforms, government policy toward lending to non-government institutions might change in the future.

13. For other Project alternatives considered and reasons for rejection see Section D (1) of PAD.

3. Completeness and Internal Coherence of Cost-Benefit Analysis or Other Selection Criteria

14. Policymakers in every country are confronted with two fundamental questions in considering whether toexpand a particular level of education and the desirability and nature ofpublic intervention. One important input inthis consideration is whether expansion is economically attractive, given the labor market conditions and the marginalcost of expansion. The other is the consideration of market failure and how government policy can address it. Thetwo basic tools to assess the economic attractiveness of further investment in higher education: (a) the rate-of-returnanalysis (or cost-benefit analysis) to estimate the economic returns to education for the individual and the society; and(b) the analysis of labor market outcomes of graduates to evaluate whether the supply has met the demand for skillrequirements.

15. Demand Analysis. The 1978-94 period witnessed a remarkable proliferation of public, regular highereducation institutions -- from 598 in 1978 to 1,080 in 1994. Enrollment numbers grew from 0.86 million in 1978 to2.8 million in 1994. Full-time students in undergraduate and short-cycle courses grew at an annual rate of 7.7percent. Full-time students in undergraduate and short-cycle courses grew at an annual rate of 7.7 percent. Graduateenrollment rose from zero to 0.13 million by 1994. The higher education participation rate at about 7 percent of grossenrollment includes students and other adults in degree programs, however, is very low when compared to other East

48Asian economies. For example, the higher education participation rate is 10 percent in Indonesia, 19 percent inThailand, 20 percent in Hong Kong, 39 percent in Taiwan (China), and 51 percent in the Republic of Korea. Thismay have serious implications for the sustainability of economic growth and long-term social development in China.In relation to the pressures of a growing market economy, the higher education sub-sector as a whole faces someproblems which may obstruct its further reform and development.

16. In academic year 1997-98, approximately 150,000 students were enrolled in first and second years ofundergraduate science and engineering degree programs in the 28 Project Universities. This number indicatesabsolute enrollment figures since the concept of-full-time equivalents (FTEs) has yet to be introduced in the Chinesehigher education system. A majority of students in Chinese universities are full-time students. Over the five years ofthe project or by the year 2005 (Project closing), Ministry of Education (MOE) expects the cumulative totalenrollments in science and engineering degree programs in the 28 Project Universities to reach approximately onemillion. This number would benefit from better quality curricula, teaching, equipment and books through proposedProject reforms. The one million students would signify 17 percent of total student enrollments for undergraduateprograms.

17. At present approximately 8,600 undergraduate science and engineering teaching faculty and managementstaff (institutional managers and administrators) of the 59 Project institutions (28 Project Universities and 31 PartnerInstitutions) are being targeted to benefit from proposed project reforms. By project closing in 2005, approximately43,000 teaching faculty and management staff would benefit directly from the proposed reforms. They would signifyalmost 9 percent of total teaching and management staff.

18. Rate ofReturn Analysis (cost-benefit analysis): Private returns to tertiary education are higher than those toprimary and secondary education in countries of all income levels, because of the relative scarcity of high-level skillsand often substantial public subsidies that reduce private costs. Findings of empirical studies provide the economicjustification for public subsidization of basic education and for charging tuition fees at the higher levels of education,because graduates who will enjoy higher life-time earnings are the beneficiaries of their own education. Costrecovery in the form of tuition fee has become an important feature of the higher education system in China. Rate-of-return analysis does not measure non-pecuniary private benefits and the positive externalities (spill-over effects) ofeducation. In the case of higher education, the external benefits of the development of high-level technical andmanagerial capacity that underpin economic growth, advancement of civil society, the public good nature of basicresearch, and the contribution of higher education to the nation-building process have never been estimated (Birdsall,1995). Furthermore, it does not take into account the positive social effects of extending opportunity from the elite tothe masses and of reducing the wage inequality that the expansion of higher education can bring. Thus, these benefitsof higher education call for the government to play a key role in promoting higher education to ensure equalopportunity for access and quality, in subsidizing to the degree that it generates public goods, and to provide studentfinancial assistance to correct for capital market failure.

19. Non-quantifiable or qualitative Project benefits (direct and indirect) are numerous and are envisaged to havemultiplier effects on the entire Chinese higher education system over the medium (5 years) to long-term. There areno good measures to reflect overall improvements in the quality of higher education. For example, it is difficult toisolate or separate benefits due to quality and those due to ability. Appropriate proxies have been utilized inassessing Project benefits. Below are some of the non-quantifiable Project benefits:

* While project investments would be made primarily at first and second year levels, they would provide theimpetus for embedding reforms across all four years of undergraduate science and engineering programs.

* Assisting the Chinese government in implementing much needed changes at the first and second yearundergraduate basic science and engineering levels would help the country to keep abreast of theaccelerating speed of global knowledge generation and technological improvements. Speeding up nationalefforts to transform from a planned economy to a market economy, if successful, would provide importantand closely-monitored models of change for China's vast higher education sub-sector.

49* Reforms in curriculum and teaching methodology, strengthening planning and management at institutional

and central, Ministry of Education (MOE) levels, would improve capacity and efficiency to implementreforms in teaching and learning. Support to university strategic planning and administration through thestrengthening of management information systems (MIS) would promote efficiency in planning,management and resource allocation.

* Introduction of competitive selection processes, a new concept in the area of centrally-organized curriculumdevelopment in China would lead to improvements in the quality of proposals/bids for funding.

* Universities' data on employer feedback show that Chinese industries have increasingly expressed concernsabout insufficient creativity, practical skills, and ability for teamwork demonstrated by recent universitygraduates. Project reforms would introduce changes in the learning environment to move the system towardmore student-centered learning, thereby helping to develop a pool of graduates with broad-based knowledgeand skills, enabling them with the flexibility to adapt to the challenges of a market economy. This wouldresult in increased responsiveness to labor market needs.

* Project universities have themselves identified at least one weak-performing partner institution each(although one project university has four), disadvantaged by scarce financial and human resources or bylocation in a poor area, to work on cooperative programs to be undertaken under the Project. Partnerinstitutions would be able to take advantage of spread effects of Project benefits.

- Improved communication and dissemination mechanisms for joint working and research between Projectuniversities and their partner institutions as well as other universities nationwide through the national policyof "hand-by-hand" development, emphasizing the multiplier effects of Project reforms.

• Benefits from information exchanges established through international linkages due to the presence ofinternational members in the Higher Education Advisory Panel (HEAP).

* Management and administrative efficiency of Project universities and partner institutions will be promotedthrough the introduction of more robust management information system (MIS) as well as through theproposed streamlined financial management system. These will be closely monitored through overall Projectsupervision.

20. Project cost-benefit analysis has produced an approximate internal rate of return (IRR) of 20 percent for theproject investment at a net present value of US$108.5 million using a discount rate of 10%. Given the existing datastructure, appropriate proxies have been identified to quantify as many project benefits as possible. Taking intoconsideration that the focus of the Project is predominantly on bringing about quality improvements, entire Projectbenefits are difficult to quantify due to the fact that: (a) there are no good measures of quality; and (b) the labormarket in China is not yet competitive in the context of a mature market system. As a starting point, the potentialeconomic benefits of investment in quality using graduates' eamings differentials are provided in Part II (Cost-Benefit Analysis Summary) below.

21. Potential Economic Benefit of Investment in Quality. Analysis supports investments for upgrading thequality of undergraduate science and engineering programs. Analysis based on a survey conducted by researchers ofthe Institute of Higher Education, Peking University, in June-August 1998 revealed that the difference in earnings ofgraduates from Chinese universities of varying quality. The objective of the survey was to demonstrate the potentialeconomic benefits of investment in the quality of higher education in China. Information on earnings was collectedfrom graduates of bachelor-degree programs from two categories of universities: 246 graduates from four keynational universities, and 240 graduates from four regional and local universities (non-key universities). The surveyresponse rate was 61 percent. Since there is no good measure to reflect the overall quality of project intervention, thecentral versus the provincial levels were used as a rough proxy for quality. The key findings are as follows:

50(i) In 1996, the average annual earned income of graduates was 16,508 yuan for key universities and

10,921 for non-key universities;(ii) For graduates who completed their programs in 1989-93, the ratio of average annual earned income

between the two categories of universities was about 1.4 in favor of key universities; and(iii) Since 1994, the earned income gap between the two categories of universities was substantially

higher than that for earlier years (see Table A below).

Table A. Earnings gap between graduates of key universities and graduates of non-key universities

Graduating year Ratio of annual earned income: keyuniversities compared to non-keyuniversities

1989 1.431990 1.541991 1.291992 1.311993 1.341994 1.911995 2.211996 2.06

22. Additional analysis shows that, compared to graduates of non-key universities, graduates of key universitieswere more represented in higher-paying industries, in higher-paying enterprises, and in economically-more developedareas of the country. As market-oriented reform deepens, the earnings gap between graduates of the two types ofuniversities is likely to widen.

23. The earnings gap is partly due to differences in the quality of higher education programs, the ability ofgraduates, labor-market conditions across areas, and other factors. This survey did not provide information ongraduate ability. The cost of living in economically more advanced areas is significantly higher than that foreconomically less-advanced areas; and cost of living affects the compensation of employees. In 1996, for example,the difference in cost of living across the two areas (1,291 yuan) amounted to 23 percent of the earnings gap betweengraduates of the two types of universities (5,587 yuan). Thus, the majority of the earnings gap between graduateswere due to quality differences and other factors.

24. The results of the Peking University survey show that investments in quality of higher education programshave a direct correlation to increased earnings for graduates. The results, therefore, support the decision for Projectinvestment for improvements in teaching and learning methodology and overall quality enhancement ofundergraduate science and engineering programs.

4. Fiscal Impact and Cost Recovery (Financial Feasibility and Financial Sustainability Analysis)

25. Data on revenue and expenditure of participating universities were collected for a three-year period (1995-97) in order to assess the fiscal health of these institutions and thus their ability to repay their share of the World Bankloan (see Table 2 of project institutions' proposals of Project Documents on file). Table B shows the differencebetween total revenue and total expenditure (recurrent and capital), and the difference as a percentage of totalrevenue.

51Table B. Total revenue and expenditure of Project Universities ('000 Yuan RMB)

Institutions Year Total % Institutions Year Total %Rev- GAP Rev - GAPExp Exp

1995 36,096 10.2 1995 26,689 12.9Beijing University 1996 159,546 30.2 Nanjing University 1996 9,901 4.8

1997 174,455 28.1 1997 11,960 4.01995 3,548 1.7 1995 26,569 16.7

Beijing Aeronautics 1996 5,814 2.4 Nankai University 1996 4,750 2.7University

1997 -182 -0.1 1997 29,600 11.01995 6,123 6.8 1995 4,145 5.6

Beijing Science & 1996 4,946 4.5 Qingdao Ocean University 1996 148,682 15.3Technology

1997 6,420 4.5 1997 5,400 4.61995 5,716 3.8 1995 54,002 12.1

Beijing Institute of 1996 4,056 2.3 Tsinghua University 1996 96,352 17.7Technology

1997 9,755 4.4 1997 154,600 22.81995 4,685 3.6 1995 2,700 4.6

Beijing Normal University 1996 6,536 4.4 Shaanxi Normnal 1996 6,955 9.61997 12,110 6.8 1997 5,284 6.01995 4,530 6.5 1995 53,910 19.5

Beijing Medical University 1996 2,640 3.6 Shanghai Jiaotong 1996 21,997 6.0University

1997 2,990 3.1 1997 60,155 11.71995 7,511 3.9 1995 12,259 7.6

Dalian University of 1996 1,000 0.6 Sichuan Union University 1996 7,242 4.1Technology

1997 24,738 10.3 1997 21,616 10.81995 6,374 3.6 1995 31,009 12.2

Southeast University 1996 3,751 1.7 Tianjin University 1996 25,019 8.41997 3,180 1.3 1997 82,820 20.71995 33,447 12.0 1995 11,405 9.1

Fudan University 1996 37,025 13.0 Wuhan University 1996 6,401 4.21997 112,821 24.9 1997 -289 -0.11995 11,250 5.2 1995 8,482 5.3

Harbin Institute of 1996 545 0.2 Xian Jiaotong University 1996 11,181 5.8Technology

1997 14,820 5.0 1997 10,256 4.21995 11,573 5.4 1995 26,809 11.8

Huazhong Institute of 1996 2,885 1.0 Zhejiang University 1996 40,654 14.3Technology

1997 22,300 6.1 1997 156,790 18.61995 764 0.6 1995 -2,317 -1.8

Jilin Institute of Technology 1996 39,506 20.8 China University of Sci. & 1996 10,899 7.3Tech.

1997 -3,720 -2.0 1997 26,450 14.01995 5,643 5.7 1995 2,220 2.9

Jilin University of 1996 16,394 15.1 Mining & Technology 1996 11,940 10.7Technology University

1997 14,668 12.9 1997 42,110 29.51995 10,232 12.0 1995 3,539 3.2

Lanzhou University 1996 1,127 1.1 Chongqing University 1996 -1,092 -0.91997 -5,540 -4.8 1997 41,270 24.6

Source: Computed from Ministry of Education data, China* %GAP refers to- the difference between total revenue and total expenditure as a percentage of recurrent revenue

26. As the table shows, in general, revenue exceeded expenditure during the period. However, there weresubstantial differences in the financial health of the participating universities. For example, relatively large annualsurpluses were found in most of the leading national comprehensive universities such as Beijing University, Fudan

52University, and Tsinghua University; the budget surpluses were relatively small for other institutions. Also,diminishing budget surpluses were found in a number of institutions such as Beijing Aeronautics and AstronauticsUniversity, Southeast University, Wuhan University, and Lanzhou University. Lanzhou University, in particular, hada deficit in 1997 which amounted to 4.8 percent of total revenue (see Table C).

Table C. Variation in financial health among universities: Some examples

University/Institution Year Difference between revenue andexpenditure as a percentage ofrevenue, 1995-97

Beijing University 1995 10.21996 30.21997 28.1

Tsinghua University 1995 12.11996 17.71997 22.8

Southeast University 1995 3.61996 1.71997 1.3

Lanzhou University 1995 12.01996 1.11997 - 4.8

27. Discussions with university representatives indicated that the revenue stream during the project years wouldcontinue to increase because of additional revenue from rising tuition payments by students over time. The currentnational policy guidelines on university tuition are: (a) tuition revenue should not exceed 25 percent of the per-student cost of a university; and (b) a university can set its tuition level, subject to the evaluation and approval of thegovernment which has jurisdiction over the university. The participating universities are planning to increase theirtuition rates over time while subject to the national guidelines (for details see Section 3 of project universities'proposals in project files).

28. Most of the participating universities would be able to repay their project loan. However, a small number ofparticipating universities (e.g., Lanzhou University and Beijing Normal University) indicate that they may needcentral government assistance in loan repayment. Agreement has been reached by the Bank and the Ministry ofEducation (MOE) that participating universities should repay their loan and that universities with financial difficultywill receive financial assistance from the concerned line ministries.

29. Macrofiscal analysis: Analysis of data from the Chinese government indicates that the fiscal health of thegovernment has improved significantly in recent years (see Table D). Government deficit as a percentage ofgovernment revenue decreased from 11.01 percent in 1994 to 6.73 percent in 1997. In addition, after 1994, totalgovernment revenue grew at a faster rate than government expenditure.

53Table D. Total Government Revenue and Expenditure, 1994-97

Year Revenue Expenditure Deficit as % of Rate of increase Rate of increase in(billion yuan) (billion yuan) Revenue in Revenue Expenditure (%)

1994 ( 521.81 579.26 y 11.01 i 20.0 24.81995 624.42 682.37 9.31 19.6 17.81996 740.80 793.76 7.15 18.7 16.31997 865.11 923.36 6.73 16.8 16.3

Source: China Statistical Yearbook 1998 (Table 8-1, page 269)

30. In 1997, total government expenditure was 923.36 yuan and total government education expenditure wasestimated at 186.3 billion yuan. Although a small number of participating universities may require governmentassistance in repaying the loan, the total amount of such assistance is likely to be less than 50 million yuan,constituting a very small proportion of total government expenditure for education or total government expenditure.Thus, the GOC would be able to provide some assistance to the needy universities.

31. During project preparation, project proposals of participating universities were revised twice to ensure thatmore precise information on the amount of counterpart funding by sources was available. The results are shown inTable E.

54Table E. Sources of Counterpart Funding ('000 Yuan)

Institutions Total SourcesGovernment University Social

ContributionBeijing University 12,450 0 12,450 0

Beijing Aeronautics 10,000 5,000 5,000 0

Beijing Science & Technology Univesity 9,000 0 9,000 0

Beijing Institute of Technology 10,000 5,000 5,000 0

Beijing Normal Univesity 9,600 0 9,600 0

Beijing Medical University 8,000 0 8,000 0

Dalian University of Technology 12,000 0 12,000 0

Southeast University 9,980 0 9,980 0

Fudan University 9,960 0 7,968 1,992

Harbin Institute of Technology 10,000 0 10,000 0

Huazhong Institute of Technology 10,000 0 10,000 0

Jilin Institute of Technology *** 10,000 1,000 9,000 0

Jilin University of Technology 10,000 0 8,000 2,000

Lanzhou University 9,753 1,950 6,846 957

Nanjing University 9,960 0 9,960 0

Nankai University *** 10,000 7,500 2,500 0

Qingdao Ocean University 8,715 5,715 3,000 0

Tsinghua University 16,600 0 16,600 0

Shaanxi Normal University 8,300 0 8,300 0

Shanghai Jiaotong University 14,442 442 14,000 0

Sichuan Union University 19,920 0 19,920 0

Tianjin University 9,600 5,000 4,600 0

Wuhan University 9,130 0 9,130 0

Xian Jiaotong University 10,000 2,000 7,000 1,000

Zhejiang University 13,640 0 13,640 0

China University of Science & Technology 10,000 4,000 6,000 0

Mining & Technology University 8,800 0 8,800 0

Chongqing University 9,800 1,500 6,500 1,800

Notes* Sum of contribution from government and community = 442,00OYuan** Some social contribution is expectedis* Sum of contribution from government and community = 100,00OYuan

5532. Results show that counterpart funding comes from three major sources: the government, the university, andsocial contribution. As a result of being included in the project, a number of universities have been able to obtainadditional resources from the government and from the community to support their participation. As shown in ChartI below, the great majority of counterpart funding (83 percent on average) comes from universities' own budget.

Chart 1. Counterpart Fundingby Source

S. Contri. Govt.3% 144%

Univ.83%

33. Participating universities were asked to estimate the additional recurrent spending needed to sustain projecteffectiveness after the completion of the project and to project their revenue growth over time (for details see ProjectInstitutional Proposals in Project Documents on file). Data show that, after project completion, the projected revenuewill be at least as large as the total recurrent expenditure (which includes the additional recurrent spending forsustained effectiveness). To increase the likelihood of sustained effectiveness, the Bank has requested that estimatesof additional recurrent spending be included in the five-year plan of each participating university subsequent toproject completion.

5. Sensitivity Analysis

See Part II (Cost-Benefit Analysis Summary) of Annex 4 for details.

6. Institutional Capacity and Risk Analysis

See Section F (2) of PAD for critical project risks.

34. The stage has already been set by providing appropriate information to the Project Universities and theBorrower, with regard to some of the crucial details about project implementation. However, concern remains abouttwo issues:

* Lateral interactions within and between universities: Previous Bank-supported education projects haveshown a high degree of compartmentalization among and within the various implementing agencies. Thecurrent Project has been designed with special attention to dissemination mechanisms and communicationchannels with regard to research, development of textbooks, national level seminars to address thistraditional weakness in lateral interactions.

* Coordination between MOE and Project Universities: The Bank Task Team is working with the MOETask Team to ensure that implementation arrangements take proper cognizance of the weakness incoordination between MOE and Project Universities. The large number of Project Universities located invarious provinces, some of which have barely adequate communication facilities, would exacerbate thesituation. The Bank Task Team has brought this aspect to MOE's attention and has stressed the need forbetter communication in order to strengthen project coordination.

567. Poverty and Gender Analysis

For project impact on poverty alleviation, See Section A (1) on project objectives; Section C (I) Component II onPartnerships between project universities and partner institutions; Section C (3) on target population and benefits.

35. The Project would promote the concept of partnership linkages to provide opportunities for poorerinstitutions (in geographically dispersed areas, and with limited resources) to acquire much needed information oncurricula, teaching methodologies, examination reforms, MIS, and international university exchanges. Poorer, low-performing universities generally function in isolation. By teaming up with stronger institutions who have moreknow-how and international savvy, their chances of becoming part of the changing profile of China's academiccommunity are improved, which will reduce differences in quality. Through interactive communications, trainingprograms and other dissemination activities, the partnership program increases substantially the multiplier effect ofproject interventions.

36. Gender equality is not an issue in the Chinese higher education system, especially where total enrollment isconcerned. There are no issues pertaining to females to males enrollments. Traditionally, however, engineering hasnot been an areas of great demand for females. This is not the case for certain science programs/disciplines (such asbiology, chemistry) where, in fact, there is greater female enrollments than males.

8. Environmental Analysis and Linkage to Economic Analysis

37. The Project has a focus on the reform of science and engineering prograrns in Higher Education Institutions.No adverse environmental consequences are therefore anticipated.

9. Economic Performance Criteria

38. See Annex I of PAD for key performance indicators.

10. Overall Assessment

39. The Project has been designed by factoring institutional implementation capacity constraints, overall macroenvironment of China, changing labor market scenarios, the capacity of Project universities to put in place reforms,and their ability to sustain the reforms beyond the life of the project. Overall, it is expected that benefits willoutweigh the costs in the medium-long term through reforms being embedded throughout the higher educationsystem.

Part II: Cost Benefit Analysis Summary

1. This section provides justification for the Higher Education Reform-oriented investments that will besupported through the Project. An analysis of the internal rate of return to the Project is estimated. The informationwas considered, along with other arguments, by Government and the World Bank during Project negotiations todecide whether to proceed with the operation or not.

2. A steady state assumption would be inappropriate for China's Higher Education System: (a) The CulturalRevolution has had far reaching influence on the Chinese economy, and specifically in the sphere of higher educationenrollments, curricula, and teaching staff; and (b) Although China has been relatively untouched by the recent pasteconomic crisis in East Asia, in the future, trade relationships between China and her trading partners are likely to beinfluenced by demands for a devalued Chinese currency to make Chinese imports more affordable. These aspectswill be factored in the sensitivity analysis which will be carried out following the cost-benefit analysis.

Methodology

3. Quantifiable Project benefits relate specifically to: (a) cost savings at the institutional level due toembedding reforms which will assist students in all four years of undergraduate science and engineering programs

57long after the direct beneficiaries/students have graduated in the year 2005 (Project closing); and (b) enhancedearnings of graduates upon completing undergraduate science and engineering programs within a qualitativelyenhanced learning environment and more appropriate training relevant to a fast emerging market economy. Projectspecific reform-oriented changes calibrated to a fast globalizing economy include reforms in university management,and improvements to teaching and the learning environment. Table I provides the breakdown of costs in relation tothe beneficiaries. An improved learning environment in science and engineering programs, stability and growth in theChinese economy, and progressive reforms toward a market-oriented economy would be the prerequisites for thequantified benefit -- enhanced graduate earnings. Such benefits would be noticeable to a smaller degree for graduatesseeking employment starting in the year 2000, and to a much larger degree in the next five years, by the year 2005 atProject closing. Hence, the timeframe for accrual of Project benefits will be spread over the medium-term, until thereforms are fully embedded in the higher education system.

Table 1. Allocation of Project Costs (US$ million)

Project Component Total cost Institutional Incremental Systemic.Cost savings Earnings Benefits

1 2 3 4 5Component A. Achieving Improvement in Effective 83.5 36.0 40.1 7.3Teaching & Learninga. Staff training 4.8 2.4 2.4b. Teaching reforms 3.1 1.2 1.2 0.6c. Lab equipment 58.2 23.3 29.1 5.8d. Books & library materials 4.4 1.3 2.2 0.9e. Maintenance/parts/consumables 13 7.8 5.2

Component B. Using Partnership & Networks to Spread 5.2 2.1 1.0 2.1Reforma. Partnership Program 5.2 2.1 1.0 2.1

Component C. Supporting Institutional Capacity for 4.2 1.7 1.5 1.1Changea. Staff training 0.1 0.1b. Study tours 1.3 0.7 0.7c. Curriculum & textbook development 2.2 0.7 0.7 0.9d. Dissemination workshops 0.3 0.1 0.1 0.1e. Research & studies 0.2 0.1 0.1 0.1f. Operating cost for Higher Education Advisory Panel 0.1 0.0 0.0 0.0(HEAP)

Total Base Project Costs 92.9 39.8 42.7 10.5Note: Figures may not add up due to rounding.

Cost/Benefit Analysis - Assumptions and Calculations

Calculation of Benefit Stream #1: Cost Savings

4. Project costs can be apportioned broadly to three categories: (a) benefits directly attributable to theinstitution; (b) benefits accruing to improved productivity of graduates through incremental/increased eamings due toreceiving quality education; and (c) spillover benefits to the higher education system as a whole.

5. tost stream directly attributable to Project institutions (US$39.8 million) comprise: (a) Costs of achievingimprovement in effective teaching and learning directly applicable to the institution (US$36.0 million); (b) Costs toinstitutions due to using partnership & networks activities for sharing reform experiences (US$2.1 million) and (d)

58Costs for supporting institutional capacity for change (US$1.7 million). The breakdown of costs is provided in Table1, column 3 above.

6. Estimated cost savings benefit stream is calculated by taking the difference in estimated unit costs with andwithout the Project, multiplying the values by projected student enrollments in Project universities and partnerinstitutions over the Project period (academic years 2000 - 2005) and projected for 25 years - to the year 2030.

* The concept of FTE has not yet been introduced in the Chinese higher education system. Theintroduction of the concept is envisaged by the end of Project implementation. In the absence of FTEcalculations, Higher education student enrollments are estimated to increase at an average annual rate of7 percent. Based on the enrollment rates, it is estimated that approximately one million graduates willdirectly benefit from reforms proposed to be introduced through the Project. Of the one million, it isassumed that about 80 percent will enter the labor market, while the remaining 20 percent will transitionto post-graduate studies.

Benefit Stream #2: Incremental Earnings Analysis

7. Cost stream directly attributable to enhancing graduates' productivity (US$42.7 million) comprise: (a) Costsof achieving improvement in effective teaching and learning directly applicable to the institution (US$40.1 million);(b) Costs to institutions due to using partnership & networks activities for sharing reform experiences (US$ 1.0million) and (d) Costs for supporting institutional capacity for change (US$1.5 million). The breakdown of costs isprovided in Table 1, column 4 above. Spending per student or average annual unit costs for Project universities was$2,525 as of 1997. Since this represents up to date unit cost information provided by Project universities as part oftheir strategic planning, this data has been utilized to calculate the cost stream for training future graduates.

8. Assumptions for calculating the incremental earnings benefits stream include the following:

* Extrapolating the current graduation rate, of the estimated numbers enrolled students, approximately 20percent of enrolled students who graduate will go on for post-graduate science & engineering programs, andthe remaining 80 percent would seek employment. Underlying the 80 percent assumption is the reasoningthat with China becoming increasingly a market-oriented economy, more graduates can be expected totransition into the labor market in the coming years. Moreover, with appropriate training oriented to amarket economy, more graduates are likely to find suitable employment in the short to medium-term (duringthe life of the Project).

* Dropout rates in the Chinese Higher Education System are very low and therefore do not have a significantimpact on graduation rates.

* Potential investments in quality will have high private and social returns to higher education. Estimates for1990 indicate private rate of return to be 12.65 and the social rate of return to be 7.78 (Source: China HigherEducation Reform. Red Cover Country Study. WorldBank. 1997. Pp.105). Extrapolating the 1996 averageannual income of science and engineering graduates (Source: Peking University Graduate Tracer Study,1998), and assuming that graduates seek employment in transportation, communication, trade, science,technology and the service industries, a conservative assumption of $1,990 has been assumed as averageannual income per graduate from 1999 onwards. Since the Peking University survey did not provideinformation on the ability of graduates, on labor market conditions across areas, and other factors,extrapolating the results of the survey, it would be inappropriate to attribute the entire earnings differential asthe consequence of quality enhancement reforms supported by the Project. Therefore, a conservative level of25 percent of observed earnings differential has been assumed. After controlling for occupationaldifferences, employment sectors and regions, incremental earnings differential are estimated to remain at anannual rate of 25 percent in real terms in favor of graduates who will benefit from the Project. This isprimarily due to increase in productivity of the graduates who will benefit from a quality enhanced leamingenvironment calibrated toward more market relevant skills. At present the Chinese labor market is growing

59to be increasingly competitive, and at this stage is in transition. Incremental earnings, however, are likely toincrease at a decreasing rate in the future, as a result of the slowing down of the economy due to the effectsof the East Asian crisis. For this reason, no increases in incremental earnings over time are assumed forpurposes of calculating the earnings' benefits stream. Sensitivity analysis reveals that project rate of return issensitive to this assumption.

Earnings increases are estimated to continue for the first 12 years of a graduate's working life reflectingprolonged changes at a slowing rate in the Chinese economy to a market-oriented system. Thereafter theincrements between the two groups of graduates (with and without the Project) will remain constant.

9. Quality enhancement inputs (component 1) and the partnership component (#2) are closely linked to thenational institutional development component (#3). The three components jointly contribute to increasing theproductivity of graduates. Activities in component 3 pertain to institutional capacity building for putting in place anddisseminating reforms. The multiplier effect of reforms particularly between Project universities and partnerinstitutions is a crucialelement of the Project.

Summary Results of the Cost-Benefit Analysis

10. The Project internal rate of return (IRR) and related net present value of the net benefit stream are providedbelow. Net present value has been calculated based on a discount rate of 10 percent.

Net Present ValueBenefit stream US$801.6Cost streamn US$693.1Net benefit stream US$108.5IRR 20%

I It is assumed that the economic andfinancial rates of return to be the same.

60Summary Results of the Sensitivity Analysis

11. Project risks and measures to minimize them are provided in Part 1 (6) of Annex 4. Sensitivity analysis wascarried out to test the impact of: (a) changes in the quality of higher education as measured by a decrease in theincremental earnings of graduates; (b) shortfall in enrollment targets and graduation rates; (c) delays in Projectimplementation; (d) changes in unit costs due to improvements in university administration. Results of the sensitivityanalysis reveal that the Project is highly sensitive to changes in quality of higher education as measured by the relatedaffect on incremental earnings of graduates. Results of some of the sensitivity analysis iterations are provided below.

Scenario IRRA. Delay in Project in costs and benefits by 2 years i.e., Project commences 2 years

later in 2001 and not in 1999 18%

B. Enrollment target of 7 percent is not met and the increase is by only 4 percent 17%

C. Enrollment target of 7 percent is met, but there is a decrease in number ofgraduates from 80% to 60% due to a less improved learning environment 16%

D. Higher earnings' differential in favor of graduates who benefit from the Project -50 percent instead of 25 percent 34%

E. Lower earnings' differential in favor of graduates who benefit the Project - 12.5percent instead of 25 percent 19%

F. Higher unit costs differential due to improvements in universityadministration,US$2,652 instead of US$2,525 18%

G. Increase in unit costs differential as a result of including the third cost stream i.e.,costs of achieving systemic benefits 18%

61

Annex 5Financial Summary

Bank Fiscal Year Ending June 30(US$ million, 1999)

Implementation Period TotalProject Costs

1999 2000 -2001 2002 2003 2004

Investment Costs 3.0 30.0 30.0 20.0 7.0 1.2 91.2

Recurrent Costs 0.0 3.0 3.0 2.0 2.0 2.0 13.1

Total 3.0 33.0 33.0 22.0 9.0 3.2 104.3Financing Sources (% oftotal project costs) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

IBRD/IDA 45% 60% 70% 80% 90% 100%

Govemment 55% 40% 30% 20% 10% 0%

Total 100% 100% 100% 100% 100% 100% 100%

62

Annex 6

Procurement and Disbursement Arrangements

Procurement

1. The loan and credit will be used to finance procurement of goods and services. A small amountof works, mainly remodeling and rehabilitation, will be financed by counterpart funds under theproject. Procurement under the project will follow the two current Bank Group guidelines forprocurement of goods, civil works, and services: (i) Guidelines: Procurement under IBRD Loans andIDA Credits, dated January 1995 and revised in January and August 1996 and September 1997(Procurement Guidelines); and (ii) Guidelines: Selection and Employment of Consultants by WorldBank Borrowers, dated January 1997, and revised in September 1997 (Consultant Guidelines). TheChina Model Bidding Documents for International Competitive Bidding (ICB) and NationalCompetitive Bidding (NCB) procedures will be used. All consultant assignments will follow theStandard Request for Proposals - Selection of Consultants, dated July 1997 and revised in April, 1998and January, 1999.

Summary of Procurement Arrangements (Table A)

2. Goods (US$86.4 million including contingencies). Goods including laboratory equipment forscience and engineering education, audio-visual aids, library books and materials, personal computersand software will be procured for the project. Large quantities of similar type of equipment andpersonal computers justify the size and scale for the use of ICB although the value of individualcontracts for most of the equipment may not exceed US$50,000. MOE and project institutionsindicated their preference for ICB. The selection of items for procurement through ICB may be basedon technical specifications as well as the estimated aggregate size of the package. The initialprocurement plan proposes that about 75% of the equipment will be procured through ICB and the restthrough international shopping.

3. Qualified domestic manufacturers will be eligible for a margin of preference in bid evaluationof 15 percent or the prevailing rate of custom duty, whichever is less, under ICB procedures. Contractpackages not expected to exceedUS$54.3 million in the aggregate will be procured through ICBacceptable to the Bank. Contracts with an estimated value of less than US$50,000 each, not to exceedUS$7.5 million in the aggregate, will be awarded through international shopping procedures aftersolicitation and evaluation of at least three written price quotations from two different countries.Contracts for goods estimated to cost less than $200,000 equivalent each, up to an aggregate amountnot to exceed $5,000,000 equivalent, may be procured using NCB. The procurement plan proposesthat books, library materials, and CDs be procured through NCB. Nornally ICB is the preferredmethod but in this particular case NCB procedures are considered based on the followingjustifications:

(i) 85% of the titles are locally published and in Chinese;(ii) the lack of these books seriously affects the learning process and achievements of

students;(iii) by providing the books at the earliest time in the project, the impact of the

unavailability of books could be minimized; and(iv) there is evidence of adequate competition among book suppliers so that economical

procurement is possible.

4. Staff Training (US$6.3 million including contingencies). Staff development including in-country training for teachers, administrators, lab instructors and overseas study tours will be financedby the loan credit proceeds. This category includes training expenses such as courses, workshops, and

63

travel and subsistence allowances. Overseas study tours would be managed based on Terms ofReference to be reviewed by the Higher Education Advisory Panel for the project and approved by theBank. Local training will be carried out in selected institutions on the basis of training programsdescribed in the PIP and approved by the Bank.

5. Consultant Services (US$6.0 million including contingencies). Technical assistance, mostlyin the form of local consultant services, provided by individuals and institutions, will be selected andcontracted in accordance with the Consultant Guidelines. Most TA will be for contracts of less thanUS$100,000, using Selection Based on Consultants' Qualifications, or the procedures for employingindividuals.

Thresholds for Procurement Methods and Prior Review (Table B)

6. Prior review by the Bank of all stages of the bidding process will be required for: (a) all goodscontracts procured using ICB and NCB.

7. Consultant contracts with firms of US$100,000 equivalent or more and contracts withindividuals of US$50,000 equivalent or more will require the Bank's prior review and approval. TheBank requested that the Terms of Reference (TORs) for local training programs and overseas studytours be reviewed and acceptable to the Bank.

Post Review

8. It is expected that post review of documents related to 25 percent of contracts and directpurchases will be conducted according to Bank guidelines. This arrangement will be assessed duringthe Mid-term Evaluation, and if indicated the percentage may be reviewed.

Disbursement

9. The proposed loan of US$20.0 million and credit of SDR $36.8 million would be disbursedover a period of six years, up to the closing date of July 31, 2005. The allocation of loan and creditproceeds according to expenditure category is outlined in Table C.

10. Disbursements will be made against statements of expenditure (SOEs) for: (i) goods undercontracts costing less than US$200,000; (ii) contracts for the employment of consulting firms valuedat less than US$100,000 each, and contracts for the employment of individuals valued at less thanUS$50,000 each; and (iv) training. Documentation supporting the SOEs would be retained by FILOin MOE and the FILO in the project institutions and made available for review by Bank supervisionmissions. All other disbursements from the loan and credit would be against full documentation.There will be no retroactive financing.

11. Special Accounts. To facilitate disbursement, a Special Account would be established in USdollars, in a commercial bank acceptable to the Bank and on terms and conditions satisfactory to theBank. The Special Account will be managed by FILO, MOE. FILO will prepare and submit to theBank disbursement applications. For goods, FLO will prepare application documentation andsupporting documents; for training and certain local expenditures, participating universities willprepare the disbursement documentation and submit to FLO for approval. In other on-going educationprojects, the delays in processing of reimbursement claims and flow of funds has been one of themajor problems because of rather complicated internal disbursement procedures which involve bothproject management office and financial bureau at respective levels. The disbursement arrangementproposed for the Project will be able to resolve such problem. The Special Account would be used forall eligible foreign and local expenditures. Applications for replenishment of the Special Accountwould be submitted monthly or whenever the Account has been drawn down by about 50 percent of

64

the initial deposit, whichever occurs first. The aggregate initial deposit for the Special Accounts isUS$ 7 million, the estimated average expenditure for a four month period.

Table A: Project Costs by Procurement Arrangements(in US$ million equivalent)

Expenditure Category Procurement Method Total Cost(including

contingencies)ICB NCB Other a/ N.B.F.

Lab Equipment 60.4 21.2 81.6(54.3) (7.5) (61.8)

Staff Training 6.3 6.3(2.7) (2.7)

Books & Materials 5.0 5.0(2.3) (2.3)

Consultant Services 6.0 6.0(2.9) (2.9)

Partnership Program 5.4 5.4

Loan Charges (0.2)

Total 60.4 4.7 33.5 5.4 104.3(55.6) (2.3) (I 1.8) (70.0)

Notes:ICB = International Competitive BiddingNCB = National Competitive Biddinga/ This category includes consultant services, research and evaluation procured

following Consultant Guidelines; training; international shopping; and operationalcosts.

N.B.F. = Not Bank financed.Figures in parenthesis are the amounts to be financed by the Bank loan and credit.

65

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review

Goods $200,000 or more ICB All ICB contracts$50,000 or more NCB All NCB contracts$50,000 or less International Shopping

Staff Training N.A. Other Annual plans for localtraining and TORs foroverseas study will besubmitted to the Bank forreview and approval.

Consultant Services $50,000 for individual Z Individual Consultant All individual consultants$100,000 for firms E Selection Based on contracts costing $50,000 or

QCBC and CQ more and consulting firmscontracts costing $100,000 ormore.

66

Table C: Allocation of Loan/Credit Proceeds

Expenditure Category Amount of the Amount of the FinancingCredit Loan Allocated Percentage

Allocated (US$ million)(US$ millionequivalent)

(1) For Part A of the Project:

(a) Goods 44.4 19.8 100% of foreign expenditures,100% of local expenditures(ex-factory cost), and 75% oflocal expenditures for otheritems procured locally.

(b) Training: 1.3 100%

(2) For Part C of the Project:

(a) Training and Study tours 1.3 100%

(b) Consultant Services 2.9 100%

(c) Higher Education Advisory 0.1 100%Panel

(d) Front End Fee 0.2

Total 50.0 20.0

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Annex 7

China: Higher Education Reform ProjectEvaluation of Project Financial Management System

I. In accordance with the Bank OP/BP 10.02 guideline and the Guide for Review and Design ofAccounting and Reporting system for World Bank Financed Projects (December 1997, CentralOperational Services Unit, East Asia and Pacific Region), the task team has assessed the FinancialManagement System of Higher Education Reform Project (the "Project" ), including review ofinternal control, project accounting, planning, budgeting, financial reporting system and staffing. Thetask team also reviewed the auditing arrangements and those for the Special Account and itsdisbursements. As a result of the assessment, it is confirmed that the Project has satisfied the Bank'sminimum financial management requirements as stipulated by OP/BP 10.02. Following are thefindings and agreements reached with Ministry of Education (MOE).

Findings

Project Financial Management Structure

2. The Foreign Investment and Loan Office (FILO) of Ministry of Education is in charge of theoverall financial management and disbursement of the Project. The Project covers 28 universitieswhich all have respective financial units staffed with competent personnel. Two layers ofmanagement will be involved in the Project financial management. The financial unit of eachuniversity will be responsible for the Project financial management in the university and maintainProject books and accounting records while FILO will keep the accounting records relating to thedisbursement of Bank Loan.

Internal and other controls

3. FILO to date has managed 6 Bank financed projects and has accumulated extensiveexperiences as to Bank's various financial management requirements. Detailed policies andprocedures regarding project financial management for the 6 projects have been prepared and properlydistributed. Similar policies and procedures for the Project are currently under preparation by FILOand will be properly distributed once available. In addition, task team visited some universities andevaluated internal controls in place in the relevant management offices and the financial units. It wasnoted that internal control system of the universities visited is adequate and effective and nosignificant weaknesses were found. Within FILO, the task team noted clear segregation ofauthorization, verification and reconciliation; Financial/accounting staff has well-defined jobdescription and segregation of duty is maintained.

Accounting System

4. The High Education Accounting Standard issued by Ministry of Finance (MOF) in December1997 has been adopted by all universities in PRC for their own financial management and accounting.However, accounts and reports relating to the Projects are currently set up in accordance with"Temporary Regulations on Financial and Accounting management for Projects Financed by theWorld Bank" (the "Regulations" ) issued by MOF. The Regulations were issued in 1993 and furtherrevised in 1997 and presumably incorporated requirements stipulated by the Bank. Accrualaccounting will be adopted for the Project, which is in line with other Bank financed projects in PRC.Original vouchers and supporting documents will be maintained by respective financial units ofparticipating universities and activities outside the Project will be properly segregated.

68

Budgeting and Planning

5. The Financial Department of MOE is in charge of the Project preparation, and the overallProject budget has been prepared by the Financial Department of MOE with participation from the 28universities. MOE Finance Department is also responsible for monitoring the use of the Projectfunds. The annual budget plan of the Project will be prepared by FILO and implemented byparticipating universities and FILO.

Financial Reporting

6. Participating universities will provide FILO with annual financial statements prepared inaccordance with format and content prescribed by FILO. The reports will cover both the Bank fundsand local funds.

Auditing

7. Project auditing will be performed by the National Audit Office (NAO) or its braru.hes, andannual audited reports will be due to the Bank within 6 months after the end of each reporting year.The audit arrangement is similar to other Bank financed projects in PRC.

Special Account and Disbursement

8. The Special Account will be managed by FILO. FILO will prepare and submit to the Bankdisbursement applications. For Goods, FILO will prepare application documentation and supportingdocuments; for training and certain local expenditures, participating universities will prepare thedisbursement documentation and submit to FILO for approval. In other ongoing education projects,the delays in processing of reimbursement claims and flow of funds has been one of the majorproblems because of rather complicated internal disbursement procedures which involve both projectmanagement office and financial bureau at respective levels. It is believed that disbursementarrangement proposed for the Project will be able to resolve such problem.

Agreements reached

Financial Reports

9. To meet the Bank's requirements, the following reports are to be submitted by the Project onsemi-annual basis:

* Balance Sheet* Statement of sources and uses of funds by project component* Statement of Implementation of Project* Statement of special account

FLO will be responsible for consolidating information collected from respective participatinguniversities to come up with the required statements at the Project level.

Financiallaccounting operation manual

10. To ascertain that accurate accounts of project activities will be available on a timely basis,FLO is now preparing detailed guidelines on project accounting and has agreed that a comprehensiveoperation manual covering all major areas of the Project will be developed and made available beforeeffectiveness to all staff.

69

Annex8

TYPICAL PROJECT MANAGEMENT ORGANIZATION CHART

MINISTRY OF FINANCE MINSTRY OF EDUCATION | STATE DEVElOPMENT PLANNING COMMISSION - | : | ~~~~~~~~~COMMISSIONl

TPROJECT LEADING GROUPMINISTRY OF EDUCATION

FOREIGN INVESTMENT LOAN OFFICEMINISTRY OF EDUCATION

HIGHER EDUCATION ADVISORY PANEL HIGHER EDUCATION DEPARTMENT{ 1 ~~~~~MINISTRY OF EDUCATION

PROJECT UNIVERSITIES PARTNER INSTITUTIONS

PROJECT UNIVERSITYLEADING GROUP

, _ ~~~~~~~~JointI = ~~~~~~Leading

PROJECT UNIVERSITY GroupFOREIGN INVESTMENT LOAN OFFICE

LABIEQUIPMENT TEACHING AFFAIRSFlACl |DMSION DIVISION DIVISION l

PROJECT UNITS AND LABP CENTERSd i

Prepared by Ministry of Education

70

Annex 9Documents in the Project File*

A. GOVERNMENT PROJECT DOCUMENTS

1. Project Implementation Plan2. Project Procurement Plan3. Project proposals from 28 institutions4. Project proposal from MOE for National-Level Technical Assistance Activities5. Consolidated Statistical Tables:

Table 1: Basic Statistics of Project University in 1997Table 2: The Revenue and Expenditure of Project University Since 1995(I)Table 3: The Planning of the Project University for 2004Table 4: Cost Analysis of the Project UniversityTable 6: Cost Statement of Personnel Training for Project UniversityTable 7: Project Effectiveness Indicator(I)Table 8: Sustainable Effectiveness Analysis of the Project

6. Financial Management Guidelines for Project Institutions

B. OFFICIAL POLICY DOCUMENTS

Government of China. Decision on Education Reform. Beijing, China. 1985.

Govermment of China. Guidelines of China's Educational Reform and Development. Beijing, China.1993.

Ministry of Education: Higher Education Law (pending translation into English). Beijing, China.1998.

State Education Commission of China. The Development and Reform of Education in China, 1986-1988. Beijing, China. 1989.

C. BANK TEAM MISSION DOCUMENTS

1. Project Costab Files2. Summary of Social Assessment Study3. Procurement Review4. Economic and Financial Analysis (Full Text and Tables)5. Aide Memoire: Preparation Mission, July 19986. Aide Memoire: Pre-Appraisal Mission, November 19987. Aide Memoire: Appraisal Mission, January 1999 (includes guidelines for Study Tours and

Dissemination Workshop TORs)

D. RELATED DOCUMENTS

World Bank. Higher Education: The Lessons of Experience. Washington, DC. 1994.

World Bank. CHINA Higher Education Reform. A World Bank Country Study, Washington DC.1997.

Chinese University of Hong Kong. Report on a Study of the Learning Experiences of Second YearScience and Engineering Students in China. CUHK Institute of Educational Research, mimeograph.1999.

*Including electronic files.

71

Annex 10Project Processing Schedule

Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months)First Bank mission (identification) June ,1998 June, 1998Appraisal mission departure January, 1999 January, 1999Negotiations March, 1999 March, 1999Planned date of Effectiveness September, 1999

Prepared by: Ministry of Education

Preparation assistance: PHRD Grants; Consultant Trust Funds

Bank staff who worked on the project included:

Hena Mukherjee (TTL), Dingyong Hou, Susan Brown (EASED); Shobhana Sosale, Cao Xiaonan(HDNED); Jamil Salmi (LCC3C); Kin Bing Wu (LCHSD); Shen Chau-Ching, Chu Junxue, GuoXiaowei, Lin Zongcheng (EACCF); R. Gopalkrishnan (COSU); Margaret Png, Nicolett DeWitt(LEGEA); Kim Hyung Min, Yi-ling Liu (LOAAS).

Consultants who contributed included:

Hon Chan Chai, John Fielden, Samih Mikhail, Erik Thulstrup, Mun Tsang

Peer Reviewers were:

Peter Moock (EASED), William Experton (LCSHD)Ruth Hayhoe (Director, Institute of Education, Hong Kong), He Jin (Senior Advisor, UNDP,Beijing)

72

Annex 11Status of Bank Group Operations in China

IBRD Loans and IDA Credits in the Operations Portfolio

Original Amount in US$ Millions

Loan or Fiscal

Project ID Credit Year Borrower PurposeNo. IBRD IDA Cancellations Undisbursed

Number of Closed Loans/credits: 207

Active LoansCN-PE-3591 IBRD43090 1998 PRC STATE FARMS COMMERCI 150.00 0.00 0.00 150.00

CN-PE-3606 IBRD43040 1998 GOC ENERGY CONSERVATION 63.00 0.00 0.00 63.00CN-PE-40185 IBRD42370 1998 PRC SHANDONG ENVIRONMENT 95.00 0.00 0.00 95.00CN-PE-51736 IBRD43030 1998 GOC E. CHINA/JIANGSU PWR 250.00 0.00 0.00 250.00CN-PE-34081 IBRD42000 1997 PRC XIAOLANGDI MULTI. II 230.00 0.00 0.00 230.00

CN-PE-34081 IBRD42001 1997 PRC XIAOLANGDI MULTI. II 200.00 0.00 0.00 190.25

CN-PE-3590 IBRD41870 1997 PRC QINBA MTS. POVTY RED 30.00 0.00 0.00 30.00

CN-PE-3590 IDAN0280 1997 PRC QINBA MTS. POVTY RED 0.00 150.00 0.00 141.21

CN-PE-3635 IDA28980 1997 PRC VOC. ED. REFORM PROJ 0.00 20.00 0.00 16.61CN-PE-3635 IBRD4063A 1997 PRC VOC. ED. REFORM PROJ 10.00 0.00 0.00 10.00CN-PE-3637 IDAN0270 1997 PRC NATL RUR WATER III 0.00 70:0- 0.00 66.25

CN-PE-36405 IBRD41790 1997 PRC WANJIAZHAI WATER TRA 400.00 0.00 0.00 358.66CN-PE-3643 IBRD40990 1997 PRC XINJIANG HIGHWAYS II 300.00 0.00 0.00 268.81CN-PE-3650 IBRD41720 1997 GOC TUOKETUO POWER/INNER 400.00 0.00 0.00 400.00CN-PE-3654 IBRD41240 1997 PRC HUNAN/GUANG HWY2-NH2 400.00 0.00 0.00 400.00

CN-PE-36952 IDA29540 1997 PRC BASIC ED. IV 0.00 85.00 0.00 76.95

CN-PE-38988 IBRD41610 1997 PRC HEILONGJIANG ADP 120.00 0.00 0.00 117.00CN-PE-44485 IBRD41970 1997 SHANGHAI WAIGAOQIAO 400.00 0.00 0.00 400.00CN-PE-34618 IBRD3967A 1996 PRC LABOR MARKET DEV. 10.00 0.00 0.00 10.00CN-PE-34618 IDA28000 1996 PRC LABOR MARKET DEV. 0.00 20.00 0.00 15.60CN-PE-3507 IBRD3933A 1996 GOC ERTAN HYDRO II 177.68 0.00 0.00 51.63CN-PE-3507 IBRD3933B 1996 GOC ERTAN HYDRO II 88.84 0.00 0.00 4.04CN-PE-3563 IBRD40010 1996 PRC ANIMAL FEED 150.00 0.00 0.00 150.00CN-PE-3569 IBRD39290 1996 P.R.C. SHANGHAI-ZHEJIANG HI 260.00 0.00 7.75 141.26CN-PE-3589 IDA27940 1996 PRC DISEASE PREVENTION 0.00 100.00 0.00 78.99

CN-PE-3594 IBRD40280 1996 PRC GANSU HEXI CORRIDOR 60.00 0.00 0.00 60.00

CN-PE-3594 IDA28700 1996 PRC GANSU HEXI CORRIDOR 0.00 90.00 0.00 70.50CN-PE-3599 IBRD40550 1996 YUNNAN PROV. YUNNAN ENVIRONMENT 125.00 0.00 0.00 125.00

GOV.CN-PE-3599 IDA28920 1996 YUNNAN PROV. YUNNAN ENVIRONMENT 0.00 25.00 0.00 16.54

GOV.CN-PE-3602 IBRD39660 1996 PRC HUBEI URBAN ENV. PRO 125.00 0.00 0.00 125.00

CN-PE-3602 IDA27990 1996 PRC HUBEI URBAN ENV. PRO 0.00 25.00 0.00 15.33CN-PE-3638 IBRD40440 1996 PRC SEEDS SECTOR COMNER. 80.00 0.00 0.00 80.00CN-PE-3638 IDA28860 1996 PRC SEEDS SECTOR COMMER. 0.00 20.00 0.00 10.05

CN-PE-3646 IBRD40450 1996 PRC CHONGQING IND POL CT 170.00 0.00 0.00 170.00CN-PE-3648 IBRD39870 1996 SHANGHAI MUN. SECOND SHANGHAI SEWE 250.00 0.00 0.00 211.80

GOVTCN-PE-3649 IDA28340 1996 CHINA SHANXI POVERTY ALLEV 0.00 100.00 0.00 49.20CN-PE-3652 IBRD39860 1996 PRC 2ND SHAANXI PROV HWY 210.00 0.00 0.00 178.56CN-PE-36950 IDA28310 1996 PRC BASIC ED. POOR III 0.00 100.00 0.00 39.91CN-PE-40513 IBRD40270 1996 PRC 2ND HENAN PROV HWY 210.00 0.00 0.00 198.00CN-PE-3493 IBRD39106 1995 PRC INLAND WATERWAYS 210.00 0.00 0.00 142.81CN-PE-3571 IBRD38976 1995 PRC RAILWAYS VII 400.00 0.00 0.00 392.00CN-PE-3585 IBRD37880 1995 GOC SHENYANG IND. REFORM 175.00 0.00 0.00 122.24CN-PE-3596 IBRD3874A 1995 PRC YANGTZE BASIN WATER 97.26 0.00 0.00 65.06CN-PE-3596 IDA27100 1995 PRC YANGTZE BASIN WATER 0.00 110.00 0.00 9.45CN-PE-3598 IBRD37810 1995 LIAONING ENVIRONMENT 110.00 0.00 0.00 75.09CN-PE-3600 IBRD3847A 1995 PRC TECHNOLOGY DEVELOPME 194.99 0.00 0.00 174.53CN-PE-3603 IBRD3773A 1995 PRC ENT. HOUSING SOC. SE 262.51 0.00 0.00 240.11CN-PE-3603 IDA26420 1995 PRC ENT. HOUSING SOC. SE 0.00 75.00 0.00 6.20CN-PE-36041 IBRD38736 1995 MOF FISCAL & TAX REF. & 25.00 0.00 0.00 25.00CN-PE-36041 IDA27090 1995 MOF FISCAL & TAX REF. & 0.00 25.00 0.00 17.73CN-PE-3612 IBRD37870 1995 PRC XINJIANG HIGHWAY I 150.00 0.00 0.00 95.75CN-PE-3634 IDA26550 1995 PRC MATERNAL CHILD HEALT 0.00 90.00 0.00 33.43CN-PE-3636 IDA26510 1995 PRC BASIC EDUC IN POOR & 0.00 100.00 0.00 17.64

CN-PE-3639 IBRD39066 1995 PRC SOUTHWEST POV. REDUC 47.50 0.00 0.00 35.59CN-PE-3639 IDA27440 1995 PRC SOUTHWEST POV. REDUC 0.00 200.00 0.00 99.00CN-PE-3642 IBRD3846A 1995 ZHEJIANG POWER DEVT 154.15 0.00 0.00 93.74CN-PE-3642 IBRD3846B 1995 ZHEJIANG POWER DEVT 215.67 0.00 0.00 178.66CN-PE-3647 IDA26540 1995 PRC ECONOMIC LAW REFORM 0.00 10.00 0.00 6.02CN-PE-36947 IBRD3848A 1995 GOC SICHUAN TRANSMISSION 270.00 0.00 0.00 196.37

CN-PE-37156 IBRD3914A 1995 PRC IODINE DEF. DISORDER 7.00 0.00 0.00 7.00CN-PE-37156 IDA27560 1995 PRC IODINE DEF. DISORDER 0.00 20.00 0.00 11.37CN-PE-3502 IDA25390 1994 MOH RUR HEALTH MANPOWER 0.00 110.00 0.00 40.30CN-PE-3504 IBRD37480 1994 PRC HEBEI/HENAN NATIONAL 380.00 0.00 0.00 115.10

H'WAYS

CN-PE-3540 IDA26160 1994 PRC LOESS PLATEAU 0.00 150.00 0.00 41.90

73

Original Azmount in USS Millions

Loan or FiscalProject ID Credit Year Borrower Purpose

No. IBRD IDA Cancellations UndisbursedCN-PE-3557 IDA26230 1994 PRC FOREST RESOURCE DEV 0.00 200.00 0.00 94.86CN-PE-3562 IBRD37270 1994 PRC XIAOLANGDI 460.00 0.00 0.00 23.36

MULTIPURPOSECN-PE-3586 IBRD3711S 1994 PRC SHANGHAI ENVIRONMENT 160.00 0.00 0.00 79.76CN-PE-3593 IDA25710 1994 PRC SONGLIAO PLAIN ADP 0.00 205.00 0.00 58.55CN-PE-3595 IDA25630 1994 PRC RED SOILS II DEVELOP 0.00 150.00 0.00 46.75CN-PE-3609 IBRD3716A 1994 GOC SICHUAN GAS DEV & 175.45 0.00 0.00 145.08

CONSERVATIONCN-PE-3622 IBRD3652S 1994 SHANGHAI SHANGHAI MTP II 150.00 0.00 0.00 10.39

MUNICIPALGOVT

CN-PE-3626 IBRD3681A 1994 GOC FUJIAN PROV HIGHWAY 80.33 0.00 0.00 60.53CN-PE-3633 IBRD3687A 1994 GOVERNMENT OF TELECOMKUNICATIONS 132.76 0.00 0.00 79.19

PRCCN-PE-3641 IBRD3718A 1994 PRC YANGZHOU THERMAL POWER 248.16 0.00 0.00 89.75CN-PE-3644 IDA26050 1994 PRC XIAOLANGDI 0.00 110.00 0.00 37.65

RESETTLEMENTCN-PE-3473 IDA24750 1993 P.R.C. ZHEJIANG MULTICITIES 0.00 110.00 0.00 43.82CN-PE-3509 IDA24570 1993 PRC CHANGCHUN WAT SUPP & 0.00 120.00 27.55 24.15CN-PE-3512 IBRD3552S 1993 GOVT OF SHANGHAI PORT REST. 124.26 0.00 0.00 5.11

PEOPLES REP.OF C

CN-PE-3516 IBRD35305 1993 PRC GUANGDONG PROV. 240.00 0.00 0.00 21.43TRANSPORT

CN-PE-3526 IBRD3515A 1993 GOC SHUIKOU II 43.86 0.00 0.00 18.40CN-PE-3533 IBRD3572A 1993 TIANJIN IND. II 82.68 0.00 0.00 56.09CN-PE-3559 IDA24620 1993 PRC AGRIC. SUPPORT SERVI 0.00 11S.00 0.00 10.43CN-PE-3561 IDA24110 1993 PRC SICHUAN ADP 0.00 147.00 0.00 22.59CN-PE-3567 IDA24710 1993 PRC EFFECTIVE TEACHING S 0.00 100.00 0.00 48.24CN-PE-3570 IBRD35810 1993 PRC RAILWAY VI 420.00 0.00 0.00 125.14CN-PE-3580 IBRD35820 1993 PRC SO.JIANGSU ENVIRON. 250.00 0.00 0.00 29.05

PROTECT.CN-PE-3581 IBRD35310 1993 PRC HENAN PROV. TRANSPORT 120.00 0.00 0.00 16.15CN-PE-3592 IDA24470 1993 PRC REF. INST'L.& 0.00 50.00 0.00 21.57

PREINVEST(CRISP)CN-PE-3597 IBRD3560A 1993 PRC TAIHU BASIN FLOOD 88.65 0.00 0.00 64.71

CONTROLCN-PE-3597 IDA24630 1993 PRC TAIHU BASIN FLOOD 0.00 100.00 0.00 4.92

CONTROLCN-PE-3616 IBRD3606A 1993 PRC TIANHUANGPING HYDRO 196.60 0.00 0.00 96.63CN-PE-3623 IDA24230 1993 PRC FINANCIAL SECTOR T.A 0.00 60.00 0.00 33.95CN-PE-3627 IBRD3624A 1993 PRC GRAIN DISTRIBUTION P 325.00 . 0.00 0.00 325.00CN-PE-3627 IDA25180 1993 PRC GRAIN DISTRIBUTION P 0.00 165.00 0.00 53.50CN-PE-3632 IDA25220 1993 ROC ENVIRONMENT TECH ASS 0.00 50.00 0.00 14.91CN-PE-3486 IBRD3406A 1992 RAILWAYS V 33.73 0.00 0.00 29.05CN-PE-3492 IBRD3412S 1992 GOC DAGUANGBA-HAINAN 28.88 0.00 0.00 2.83CN-PE-3492 IDA23050 1992 GOC DAGUANGBA-HAINAN 0.00 37.00 0.00 .42CN-PE-3503 IBRD3462A 1992 ZOUXIAN THERMAL POWE 26.78 0.00 0.00 14.02CN-PE-3534 IBRD3471A 1992 PRC ZHEJIANG PROV TRANSP 70.13 0.00 0.00 26.59CN-PE-3544 IDA23390 1992 PEOPLE'S EDUC DEV IN POOR PRO 0.00 130.00 0.00 4.06

REPUBLIC OFCHIN

CN-PE-3555 IDA23070 1992 PRC GUANGDONG AG. DEVT. 0.00 162.00 0.00 7.36CN-PE-3564 IBRD3415A 1992 BEIJING BEIJING ENVIRONMENT 32.90 0.00 0.00 28.58

MUNICIPALITYCN-PE-3564 IDA23120 1992 BEIJING BEIJING ENVIRONMENT 0.00 80.00 0.00 3.69

MUNICIPALITYCN-PE-3565 IDA22960 1992 SHANGHAI METRO TRANS 0.00 60.00 0.00 3.75CN-PE-3568 IDA23670 1992 R.O.C. TIANJIN URB DEV & EN 0.00 100.00 0.00 32 32CN-PE-3587 IDA23360 1992 PRC RURAL WAT SUPP & SAN 0.00 110.00 0.00 1.80CN-PE-3624 IDA23170 1992 MIN. OF INFECTIOUS DISEASES 0.00 129.60 0.00 51.41

PUBL.HEALTHCN-PE-3478 IDA22100 1991 PRC KEY STUDIES DEVELOPM 0.00 131.20 0.00 .82CN-PE-3560 IDA22420 1991 PRC HENAN AGRIC. DEVT. 0.00 110.00 0.00 3.22CN-PE-3582 IBRD3337T 1991 PRC IRRIG. AGRIC. INTENS 45.05 0.00 0.00 2.37CN-PE-3472 IBRD29685 1988 PRC RAILWAY IV 171.30 0.00 0.00 2.04

Total 11,370.12 4,426.80 35.30 9,283.23

Active Loans Closed Loans TotalTotal Disbursed (IBRD and IDA): 6,441.79 12,596.06 19,037.85

of which has been repaid: 17.17 2,122.25 2,139.42Total now held by IBRD and IDA: 15,744.44 10,116.00 25,860.44Amount sold : 0.00 0.00 0.00

Of which repaid : 0.00 0.00 0.00Total Undisbursed : 9,283.23 .21 9,283.44

74

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590). Following the FY94-

Annual Review of Portfolio performance (ARPP), a letter based system will be used (HS = highly Satisfactory,S - satisfactory, U - unsatisfactory, HU = highly unsatisfactory): see proposed Improvements in Project andPortfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

Note: Disbursement data is updated at the end of the first week of the month.

75

China at a glance 1/28/99

East Lower.POVERTY and SOCIAL Asia & middle-

China Pacific income Development diamond*1997Population, mid-year (millions) 1,227.2 1,753 2,282 Life expectancyGNP per capita (Atlas method, US$) 860 970 1,230GNP (Atlas method, USS billions) 1,055.4 1,707 2,818

Average annual growth, 1991-97

Populatlion (%) 1.1 1.3 1.2Laborforce(%) 1.1 1.4 1.3 GNP / Gross

per ,pnimary

Most recent estimate (latest yearavallable, 1991-97) capita enrollment

Poverty (% ot population below national poverty line) 7Urban population (% of total population) 32 32 42Life expectancy at birth (years) 70 68 89Infant mortality (per 1,000 live births) 32 38 36Child malnutrition (% of children under 5) 16 16 .. Access to safewaterAccess to safe water (% of population) 90 84 84Iliteracy (% of population age 15+) 19 17 19Gross primary enrollment (% of schooP-age population) 120 118 114 China

Male 121 120 116 Lover-middle-income groupFemale 120 119 113

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1978 1986 1996 1997 1Economic ratlos*

GOP (US$ billions) 151.6 295.7 816.5 902.0Gross domestic investmentlGDP 27.9 37.7 39.6 38.2Exports of goods and services/GDP 5.0 12.2 21.0 23.0 TradeGross domestic savings/GDP 28.5 35.2 41.7 42.7Gross national savings/GDP 28.5 35.3 40.4 41.4 T

Current account balance/GDP 0.2 -2.5 0.9 3.2Interest,paymentslGDP .. 0.2 0.6 0.6 Domestic < InvestmentTotal debt/GDP .. 8.0 15.8 16.3 SavingsTotal debt service/exports ,, 9.6 8.7 8.6Present value of debt/GDP .. .. .. 14.9Present value of debt/exports .. .. .. 62,7 I

Indebtedness1976-86 1987-97 1996 1997 1998-02

(average annual growth)GDP 9.3 10.1 9.6 8.8 -. ChinaGNPpercapita 8.3 8.6 8.7 7A4 .. Lower-middle-income groupExports of goods and sevices 18,8 16.6 5.6 27.6

STRUCTURE of the ECONOMY1976 1986 1996 1997 Growth of investment and GDP (%)

(% of GDP) 3Agricunure 32.8 27.1 20.4 187 30 Industry 45.4 44.0 49.5 49.2 203

Manufacturing 29.5 35.5 37.8 37.3 Services 21.7 28.9 30.1 32.111.0

Private consumption 64.0 51.4 46.7 45.7 02 93 94 95 gs 97General govemment consumption 7.5 13.4 11.6 11.6 1Imports of goods and services 4.5 14.7 18.9 18.5 0GDI -- *-GDP

197646 1987-97 1996 1997 r(average annual growth) Growth of exports and Imports (%/6)Agriculture 6.0 4.4 5.1 3.5 40 TIndustry 11.0 13.8 12.1 10.8 T

Manufacturng 12.8 13.3 11.6 9.9 tServices 12.0 8.7 7.9 8.3 20

Private consumption 9.3 8.8 11.1 6.2 10General govemment consumption 9.4 9.9 9.5 8.2 on_iGross domestic investment 10.8 11.2 8.2 5.6 92 93 94 95 95 97

Imports of goods and services 22.5 12.8 5.9 13.1 - Exports IrrportsGross national product 9.8 9.9 9.8 8.5 -

Note: 1997 data are preliminary estimates.This table was produced from the Development Economics central database.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

76

China

PRICES and GOVERNMENT FINANCE

Domesticprikes 1976 1988 1996 1997 Inflation I%)(%/ change) 25Consumer prices .. 6.5 9.4 7.9 29rImplicit GOP deflator 4.0 4.6 5.9 1.2 16

Govemnment finance a,(1% of GDP, includes current grants) _____

Current revenue .. 24.0 11.4 12.0 92 93 94 96 9 97Current budget balance .. 5.6 0.6 0.6 - D eltr-*-POverall surplus/deficit .. -1.8 -1.5 -1.5 -G Pdfao 0-P

TRADE1976 1986 1998 1997 Epr n motlvl U$ml.

(US$ millions) Epr n motlvl USml.Total exports (fob) .30,942 151,066 182,696 2000

rood .. 4,448 10,232 11,054Fuel 3,683 5,929 6,987 15,0Manufactures 19,670 129,141 158,767

Total imports (cif) 42,904 138,838 142,361 109,909oFood 2,002 7,866 6,306 olillFuel and energy 504 6,877 10,306 Capital goods 20,415 59,610 57,930

Export price index (1995=100) .. 66 91 92 93 94 SC 55 57

Import prce index (1995=100) .. 69 aExports mimpartsTermsxof trade (1995=-100) .. 96

BALANCE of PAYMENTS

(US$ millions) 17 196 99 197 Current account balance to GDF I(%)

Exports of goods and services 7,383 29,583 171,700 207,253 Imnports of goodseand services 7,125 37,472 154,100 166,755 1Resource balance 258 -7,889 17,600 40,496

Net inoome 0 176 -12,370 -15,900Net current transfers 0 255 1,922 4,660 M M

Current account balance 258 -7,458 7,152 29,258 91 92 94 5 7Financing items (net) -. 5,410 26,248 6,599Changes in net reserves .. 2,048 -35,400 -35,857 -

Memo.:Reserves including gold (US$ millions) . 16,417 111,728 146,448Conversion rate (DEC, locallUS$) 1.9 3.5 8.3 8.3

EXTERNAL DEBT and RESOURCE FLOWS1976 1986 1996 1997 - _________ _________

(US1$ millions) Composition of 1997 debt (US$ mill.)Total debt outstanding and disbursed 23,719 128,817 146,697

lBRD . 965 7,616 8,239 A ,3IDA .. 774 7,579 7,830 A: 38,239 :,83

Total debt service .. 2,974 15,756 18,445 D ,0lBRD .. 66 840 858IDA .. 8 73 81 E: 20,7852

Composition of net resource flowsOfficial grants .. 155 249 228Official creditors .. 1,165 4,401 4,315Private creditors .. 3,693 6,454 8,134Foreign direct investment .. 1,875 40,180 44,236Portfolio equity .. 0 3,466 8,457 F 547

World Sank programCommitments .. 1,120 1,900 2,425 A IBDEBiaelDisbursements .. 607 2,097 2,275 e-o -Crrmtiaea rvtPrincipal repayments .. 0 364 377 C - IMPF 0-Short-termNettfows .. 607 1,734 1,898Interest payments .. 75 549 562Net transfers .. 532 1,185 1,335

Note: This table was produced from the Development Economics central database. 1/28/99

77Annex 13

Summary Education Profile: China

Indicators [ 1980 [ 1985 1990 1995 | 1998Number of Schools

Regular Institutions of Higher Education 675 1016 1075 1054 1022Adult Higher Education Institutions 2682 1216 1321 1156 962Secondary Schools: General 118377 93221 87631 81020 77888

Vocational 3314 8070 9164 10147 10074Specialized 3069 3557 3982 4049 4109

Number of Full-time Teachers (10,000 persons)Regular Institutions of Higher Education 24.7 34.4 39.5 40.1 40.7

% of Females 25.5 26.7 29.1 32.9 36.3Professors 0.4 0.5 1.5 3.1 3.7Associate Professors 1.3 2.9 8.4 10.7 11.6Lecturers 11.2 13.7 14.8 16.7 15.5Instructors 5.3 3.9 1.2 2.2 2.2Assistants 6.6 13.5 13.5 7.5 7.8

Adult Higher Education Institutions 3.4 6.9 8.8 9.8 9.7Secondary Schools: General 302.0 265.2 303.3 333.4 369.7

Vocational 2.3 14.1 22.4 29.2 33.6Specialized 12.8 17.4 23.4 25.7 27.9

Student Enrollment (10,000 persons)Regular Institutions of Higher Education 114.4 170.3 206.3 290.6 340.9

% of Females 23.4 30.0 33.7 35.4 38.3Science

Undergraduates 8.4 9.8 9.5 31.0 35.9Graduates 0.5 1.7 1.8 2.4 2.3

EngineeringUndergraduates 38.4 58.0 74.6 116.7 135.5Graduates 0.7 3.6 4.1 6.6 8.0

HumanitiesUndergraduates 5.8 12.7 9.9 106.4 129.2Graduates 0.3 0.5 1.8 9.5 5.6

OthersUndergraduates 61.8 89.8 112.3 36.6 40.2Graduates 0.7 2.8 1.5 2.0 2.7

Adult Higher Education Institutions 155.4 198.6 166.6 257.0 282.2Secondary Schools: General 5508.1 4706.0 4586.0 5371.0 6301.0

Seniors 969.8 741.1 717.3 713.2 938.0Vocational 45.4 229.5 295.0 448.3 541.6Specialized 124.3 157.1 224.4 372.2 498.1

Student-Teacher RatioRegular Institutions of Higher Education 4.6 5.0 5.2 7.2 8.4Adult Higher Education Institutions 45.7 28.8 18.9 26.2 29.2Secondary Schools: General 18.2 17.7 15.1 16.1 17.0


Administrative/Support Staff (10,000 persons)Regular Institutions of Higher Education 38.5 52.7 61.1 64.0 62.2Adult Higher Education Institutions 3.2 7.4 11.4 11.5 10.7Secondary Schools: General 87.7 90.5 95.8 96.1 92.4


Note: I) This summary provides a glance at higher education development in China between 1980 and 1998. 2) Adult Higher EducationInstitutions include Radio & TV Universities, Colleges for Management Cadres, Pedagogical Colleges, Independent Correspondence Colleges,Schools of Higher Education for Staff, Workers & Peasants, and Correspondence Departments or Evening Universities Run by RegularInstitutions of Higher Education. 3) General and vocational secondary schools include both junior and senior components. Specializedsecondary schools are technical and teacher training schools. 4) Administrative/Support Staff in higher education also includes those non-teaching staff such as librarians, lab technicians, researchers, etc. 5) Sources: China Statistical Yearbook 1980-97: Educational StatisticsYearbook of China 1980-97; Essential Statistics of Education in China, 1998. Reminding: the State Education Commission issued newclassification of the fields of study for higher education in both regular and adult institutions as well as for specialized secondary schools in 1994.The new classification has been used for statistical purposes since then.

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