Docamnt of

The World Bank

FOR OFFICIAL USE ONLY

oA C-Cl

Report No. P-4314-CHA

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO $225.0 MILLION

TO THE

PEOPLE'S REPUBLIC OF CHINA

FOR A

BEILUNGANG THERMAL POWER PROJECT

May 6, 1986

This document has a rcstricted distribution and may be used by recipienLs only in the performanceof their official duties. Its contents may not otherwise be disciosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Name - Renminbi (RMB)Currency Unit - Yuan (Y) = 100 Fen

1985 April 1986

$1.00 = Y2.96 Y3.20Y1.00 = $0.34 $0.31

(Project cost estimates are based on the exchange rateof Y2.80 per $1.00 which prevailed at the time of appraisal.)

FISCAL YEAR

January 1 to December 31

WEIGHTS AND MEASURES

GWh = Gigawatt hour (1,000,000 kilowatt hours)km = Kilometer (= 0.62 miles)kV Kilovolt (1,000 volts)kVA Kilovolt-ampere (1,000 volt-amperes)kW = Kilowatt (1,000 watts)kWh Kilowatt hour (= 860.42 kcals)MVA = Megavolt-ampere (1,000 kilovolt-amperes)MW = Megawatt (1,000 kilowatts)TCF = Trillion cubic feetTPD Ton per dayTWh Terawatt hour (1,000,000,000 kilowatt hours)

PRINCIPAL ABBREVIATIONS AND ACRONYMS

ECEPA - East China Electric Power AdministrationECEPDI - East China Electric Power Design InstituteECPS - East China Power SystemIAEA - International Atomic Energy AgencyMOF - Ministry of FinanceMWREP - Ministry of Water Resources and Electric PowerPCBC - People's Construction Bank of ChinaSAA - State Audit AdministrationSEC - State Economic CommissionSPC - State Planning CommissionWREPERI - Water Resources and Electric Power Economic Research

InstituteZPEPB - Zhejiang Provincial Electric Power Bureau

FOR OFFICIAL USE ONLY

CHINA

BEILUNGANG THERMAL POWER PROJECT

Loan and Project Summary

Borrower: The People's Republic of China

Beneficiary: Zhejiang Provincial Electric Power Bureau (ZPEPB)

Amount: $225.0 million

Terms: 20 years, including five years of grace, at standardvariable interest rate

Onlending Terms: The proceeds of the loan would be onlent from theGovernment to ZPEPB under a subsidiary loanagreement with a 20-year term, including five yearsof grace and at an interest rate of 8.5X p.a. Theforeign exchange risk (between the dollar and RMB)and commitment fee on the subsidiary loan would beborne by ZPEPB.

Project Description: The project aim is to support industrial growth inEast China by establishing a base-load thermal powerplant along the coast of Zhejiang province usingcoal from Shanxi. The project would provide forconstruction of a coal-fired thermal power plantincluding coal unloading facilities at Beilungangwith two generating units of 600 MW each, twosingle-circuits of 500 kV transmission lines andassociated substations, a training program, and atariff study. The station would be a state-of-the-art plant that would set standards for similarfacilities to be built in China in the future. Theproject would introduce modern techniques in dynamicleast-cost development programming and initiatedialogue on the modernization of utility managementand financial planning, which are important sectoralissues. Cofinancing through commercial banks orexport credits is being considered for the financingof the second unit of major equipment items. Theproject faces no special risks.

This document has a restricted distribution and may be used by recipients only in the perfonmanceof their offtcial duties Its contents may not otherwise be disclosed without World Bank authorization.

Estimated Costs:

Local Foreign Total- -~ ($ million) -

Site development 21.9 - 21.9Buildings and civil works .87.5 34.0 121.5Boiler plant facilities 25.5 98.0 123.5Turbine generator facilities 17.9 118.0 135.9Balance of plant equipment 39.4 70.9 110.3Transmission lines and substations 78.9 38.2 117.1Construction and office equipment 11.1 5.0 16.1Engineering and consulting services 2.5 4.0 6.5Supervision and administration 15.7 - 15.7Training 1.6 3.3 4.9Tariff study 0.5 0.2 0.7Base Cost: 302.5 371.6 674.1

Physical contingencies 33.7 18.4 52.1Price contingencies 96.5 104.3 200.8Total Project Cost: 432.7 494.3 927.0

Interest during construction 36.1 81.8 117.9Total Financing Required: 468.8 576.1 1,044.9

Note: The project is exempted from import duties and taxes.

Financing Plan:

Local Foreign Total=$ million) - -

IBRD loan - 225.0 225.0Commercial bank loans and/or export credits - 156.0 156.0

Local bank loans 468.8 195.1 663.9

Total 468.8 576.1 1,044.9

Estimated Disbursements:

Bank FY 1986 1987 1988 1989 1990 1991 1992…- - ------------ ($ million) ----------

Annual - 30.0 40.0 80.0 40.0 25.0 10.0Cumulative - 30.0 70.0 150.0 190.0 215.0 225.0

Economic Rate of Return: 8.5%

Staff Appraisal Report: No. 5889-CHA dated May 5, 1986

Map: IBRD No. 19176

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN

TO THE PEOPLE'S REPUBLIC OF CHINAFOR A BEILUNGANG THERMAL POWER PROJECT

1. I submit the following report and recommendation on a proposed loanto the People's Republic of China to help finance a Beilungang Thermal PowerProject. The loan for $225.0 million would have a term of 20 years, includingfive years of grace, with standard variable interest rate. The proceeds ofthe loan would be onlent from the Government to the Zhejiang ProvincialElectric Power Bureau (ZPEPB) under a subsidiary loan agreement for a term of20 years, including five years of grace, and at an interest rate of 8.5%p.a. ZPEPB would bear the foreign exchange risk (between the dollar and theBorrower's currency) and commitment fee on the subsidiary loan. Cofinancingthrough commercial banks or export credits is being considered.

PART I - THE ECONOMY

2. A country economic report entitled "China: Long-Term Issues andOptions" (No. 5206-CHA) was distributed to the Executive Directors onMay 22, 1985. Basic data on the economy are given in Annex I.

Background

3. Since 1978, China has initiated economic reforms in both rural andurban areas and in the external sector. Reforms have been greatest in ruralareas. Following some experiments with the abolition of collective farming inimpoverished areas, the Government implemented a comprehensive restructuringof rural institutions based on various forms of the "production responsibilitysystem". By 1983 the farm household had become the fundamental unit ofmanAgement and production in agriculture, within a framework of collective orstate ownership of land and major fixed assets. Reforms have not yet proceed-ed as far in the urban economy, but there have been significant changes inenterprise management and finance. The scope for collective and individualeconomic activities has been enlarged and state enterprises have been allowedgreater freedom in production, pricing and marketing above their mandatoryplan targets. State enterprises have also been allowed to retain some profitsand investment projects have increasingly been financed on a loan rather thana grant basis.

4. In international trade and investment, China has promoted opening upto the rest of the world in recent years. Between 1978 and 1984, the share ofexports to CDP nearly doubled to about 10%, a ratio similar to other largeeconomies such as the U.S. and Brazil. Foreign investment has been encour-aged, first through establishment of four Special Economic Zones and signingof joint venture contracts for off-shore oil exploration, and more recentlythrough opening of several coastal cities to foreign investment.

-2-

Growth and Stabilization

5. Reforms have helped stimulate rapid development of the wholeeconomy. Real CDP growth averaged 5Z p.a. between 1978 and 1981 and 1OX p.a.between 1981 and 1984. During these six years, per capita incomes in realterms more than doubled in rural areas and increased by more than 50Z in urbanareas. Agriculture has continued its remarkably strong performance, withgross agricultural output value (excluding rural industry and commerce) risingat nearly 11% p.a. between 1981 and 1984 and grain output at 8% p.a. (reachingover 400 million tons in 1984). Cash crops and animal husbandry, stimulatedby rising demand and attractive prices, have also grown rapidly. Gross indus-trial output value grew at over lOX p.a. over the same period, with heavyindustry growing somewhat faster than light industry (12Z p.a. vs. 9X p.a.).If rural industrial output is included, total industrial output value erew atclose to 12Z p.a. in real terms between 1981 and 1984. The energy constrainton industrial growth was eased by rising coal output (8Z p.a. between 1981 and1984), renewed increases in crude oil production (4Z p.a. between 1981 and1984) and improvements in the efficiency of energy utilization (primarycommercial energy consumption grew only 6O0 as fast as GDP between 1981 and1984). Manufactured exports growth at 8Z p.a. between 1981 and 1984 wasslower than during the 1978-81 period but it started from a much higher baseand in the face of worsening world market conditions.

6. The Government continues to face difficulties in combining systemreform and rapid overall growth with maintenance of economic stability.During 1979 and 1q80, China experienced large budget and current accountdeficits combined with excessive investment and inflationary pressures. Inresponse, a strict stabilization program was introduced in 1981 relying mainlyon administrative controls on investment spending. The program slowed growthbut also helped lower the budget deficit from about 5% of CDP in 1979 to lessthan 1X in 1981, reduce inflation to around 2% p.a., and change China's exter-nal position to one of current account surpluses averaging nearly $4 billionduring 1982-84. As a result, foreign debt and debt service ratios remained atlow levels ($6.4 billion and 5.5% respectively in 1983) and China's foreigncurrency reserves (excluding gold) rose to $17 billion (over seven months'imports) by mid-1984.

7. This comfortable balance of payments position, achieved at the costof drastic reductions in investment spending and some recentralization ofinvestment decisionmaking, disappeared rapidly during the course of 1984 andearly 1985. Partly as a result of decentralization of decisionmaking and thelack of effective inditect levers, there was a rapid acceleration of invest-ment and consumption during 1984 and the first half of 1985 causing theeconomy to overheat. Real GDP grew by 14% during 1984, while average wages instate-owned enterprises rose by 20% and domestic credit grew by 36%. Theretail price index rose by only 3% in 1984, but preliminary figures show aninflation rate of 9X for 1985. Imports of capital goods increased from$4 billion in 1983 to over $7 billion in 1984, with most of the increaseoccurring in the second half of the year. There was also a rapid expansion inconsumer goods imports. These trends continued during early 1985. As aresult, foreign exchange reserves (excluding gold) had fallen to about$10 billion by July 1985 (equivalent to 3.1 months of imports), and the

current account deficit for the year is likely to be in the range of$10 billion. The Government has responded quickly by launching a strictstabilization program that includes further increases in interest rates aswell as a series of administrative directives governing bank credit andproject approval. As a result, aggregate credit and demand as welL as newimport orders have begun to slow, though total imports will continue to riseas past orders are filled.

Recent Reforms

8. The CentraL Committee of the Chinese Communist Party issued a majordocument on "reform of the economic structure" in October 1984. Recent reformdevelopments have been fully in accordance with the directions indicated inthe October decision: (a) state enterprises should be made fully independentunits which pursue profits and are responsible for losses; (b) the scope ofmandatory planning should be reduced and replaced by indicative planning whilethe focus of planning should shift from annual to medium- and long-termguidance planning; (c) a more rational price system should be introduced byreducing the role of state-controlled prices and increasing the role of"floating" and free market prices; and (d) the tax system should be improved,finance and banking should be reformed and a larger role should be given toindirect macroeconomic regulation through instruments such as tax, credit andpricing policy.

9. Rural reforms have continued to progress more rapidly than reformselsewhere in the economy. There has been a remarkable spread of nonagri-cultural activities like processing, transport, and commerce. "Specializedhouseholds" (whi-h concentrate on cash crops, animal husbandry, or nonagri-cultural activities) and pooling of capical by small groups of households invarious types of ventures are becoming increasingly common forms of economicorganization in China's rural areas. Wholesale markets for some agriculturalproducts have emerged. To encourage investment in land improvement and devel-opment, farming contracts between collective and peasant households for theuse of land (which typically had been fixed for no more than 3-5 years) cannow be extended to as long as 15-20 years. In early 1985, the system ofagricultural procurement was changed. Previously the Government purchasedquota output of grain and other crops at relatively low prices and stood readyto purchase all above-quota output at a higher price. Under the new system,procurement up to a certain amount (below former quota procurement) is basedon contracts concluded voluntarily between peasants and procurementagencies. Prices for these purchases are based on the relatively high averageprice of past years. Output above the contracted amount must be sold bypeasants directly on the free market, but the Government will intervene topurchase grain if the price falls to the original low quota procurementprice. Thus a considerably larger portion of basic crop production will beproduced for and traded on markets with flexible prices.

10. The momentum of urban reforms has revived, with significant progresson several fronts. In enterprise management, the focus has been on broadeningand delineating the decisionmaking authority of urban enterprises. Profitretention now extends to virtually all state-owned industrial enterprises andto nonindustrial sectors like transport, commerce, construction, and other

- 4 -

services. Urban collectives and individual enterprises, as well as a varietyof joint ventures between them and state enterprises, have grown rapidly (thenumber employed in urban individual enterprises rose from 150,000 in 1978 to2.31 million in 1983).

11. In financial reforms, the most important new development has beenthe implementation of a profit tax system to replace profit remittances bystate enterprises to the government budget. Though most enterprises haveswitched to this system, the benefits have been limited because of theapplication of a different effective tax rate for each enterprise, to offsetthe impact of distorted relative prices and other factors. Similar problemshave resulted in the abandonment of an attempt to impose a fee or charge onthe fixed capital provided to state enterprises by the Government, and theyhave hindered the shift from grant to loan financing of new fixed invest-ment. Financial discipline at the enterprise level remains weak, in spite ofefforts to strengthen accounting and auditing systems and more strictlyenforce existing financial regulations.

12. Some progress has been made with price reform. The majority ofagriculture commodity prices were decontrolled even before the recent changein pricing and procurement of grain. Prices of many minor consumer goods arealso set by negotiations between producers and commercial units. "Floatingprices" (up to 20X above or below official prices) are now allowed for manyindustrial producer goods (either for all output or for output above themandatory plan target). Price adjustments for key energy products and rawmaterials (which in many cases are severely underpriced) and for subsidizedbasic consumer goods like grain and edible oil have proven more difficult toimplement, hindered by the potential impact of price changes on urban lvingstandards and on the finances of energy-using enterprises. Nevertheless, someprice rises have occurred (e.g., for coal and petroleum), and moreover theshare of free market transactions, at largely uncontrolled prices, hasincreased in recent years. Gradually over time, and only partly as a resultof conscious policy, a two-tier system is emerging; a large but shrinkingshare of the total supply of most important goods is subject to mandatory planallocation and administratively set prices, while at the margin a substantialand growing share is allocated by the market mechanism, largely at flexibleprices. This pattern may permit China to "grow out of the plan" in a rela-tively smooth transition, though there are obvious threats to this strategyarising from the strong incentive for arbitrage between planned and unplannedrealms.

13. The Government recognizes the need to develop new tools of fiscaland monetary macroeconomic management and has taken some steps to do so. ThePeople's Bank of China was established as a separate central bank at thebeginning of 1984, with its commercial banking functions taken on by the newlycreated Industrial and Commercial Bank of China. In 1985, new methods ofcredit planning and control were introduced and lower-level and specializedbanks were given significant redeposit requirements. Interest rates (includ-ing deposit rates) were also raised in 1985, with some move toward unificationof rates and development of a term structnre resembling that in other coun-tries. Technical transformation loans with a maturity less than one year andloans for working capital now carry the same 7.9% interest rate while loans of

- 5 -

longer maturity carry higher rates, up to 10.8% for 10-year loans. However,interest rates on budgetary capital construction loans (formerly grants)remain low and there are a variety of directed credit schemes. On theexternal side greater use is now being made of the exchange rate. The oldinternal settlement rate was abolished at the beginning of 1985 and betweenJanuary and end-October 1985 the rate against the U.S. dollar declined by over13%. Despite these changes progress in developing new indirect levers ofcontrol has been slow. Recent difficulties in securing macroeconomic balancehighlight the need to strengthen inctitutions and macroecoraonic managementtools (including monetary, fiscal, and exchange rate instrumnts) for a decen-tralized and more market-oriented economy.

Long-Term Issues and Prospects

14. In March 1986 a national congress discussed a detailed proposal fora new Seventh Five Year Plan covering the period 1986-90. The proposalreaffirms a political commitment to economic reform and provides guidelinesfor future reform and development. One of the main objectives of the planwill be to create a favorable environment for reform which, in turn, will setthe stage for future development. Target growth rates (7% p.a. for industry,6A for agriculture, a little over 7% for GNP) are below rates of growthachieved with the Sixth Five Year Plan, investment is to be restrained in thenext few years, and emphasis is to be placed upon quality rather than quantityof output. It is felt that slower growth will facilitate reform.

15. The plan proposal identifies three main areas of refora. First,enterprise management and incentives are to be improved by: givi'ag enterprisesgreater autonomy in production, pricing, and employment decisions; loweringand equalizing taxes; increasing competition; increasing accountability forperformance; and reforming personnel procedures. In addition, some smallstate enterprises will be tirned over to collective or individual managementthrough contract or lease. Second, the role of the market is to be extendedand market networks strengthened. The scope of mandatory planning will befurther reduced and markets for capital, technology, and labor will graduallybe developed. Third, the emphasis of planning will shift from detailed admin-istrative control to indirect macroeconomic control through economic policy.To this end a series of mutually reinforcing reforms in the planning, pricing,fiscal, banking, and labor and wage systems will be introduced during the planperiod.

16. Implementation of the plan proposal will help foster an environmentin which fundamental reforms can be gradually implemented in a coordinatedway. But specific policy measures will take time to design and then to imple-ment. Many of the reforms required will be difficult, particularly sincereforms in different areas are closely interrelated, and thus appropriatesequencing and coordination are essential. For example, price reform in theabsence of improvements in enterprise financial discipline will have limitedbenefits, yet the more profit-oriented behavior that would result from tighterfinancial discipline would exacerbate the adverse impact of distortedprices. Similarly, reform of the labor allocation system will be incompletewithout eliminating many of the "social responsibilities" of enterprises(which now provide housing, medical care, and pensions for their workers and

- 6 -

in many cases education and jobs for workers' children) and replacing themwith Government-supported social service programs. T'.e plan proposal suggestsmoving in this direction by commercializing housing.

17. China's objective of quadrupling the gross output value of industryand agricuLture between 1980 and 2000 (which means GDP growth of well over 6%p.a.) will require significant improvements in efficiency as well as continuedhigh saving and investment rates. The plan proposal recognizes there must bemajor structural changes in the economy over the next two decades, including areduction in the share of agriculture, a rise in the share of industry andservices (which at present is unusually low), and substantial urbanization.There will also be a shift within agriculture, away from grain and basic cropsand into cash crops and animal husbandry. The new plan will emphasizedevelopment of the service sector, mainly through removing restrictions oncollective and individual activity. Urban development will focus on small-and medium-sized cities and towns while restrictions on growth of large urbanareas will continue.

18. Certain physicaLltechnical constraints will hinder the attempt toachieve China's targets for the year 2000 and its longer-term goal of catchingup with developed countries. Despite rapid growth and substantial improve-ments in efficiency in recent years, agriculture may again become a constrainton overall growth, since land in China is severely limited. In energy, short-ages of fuel (primarily coal) and electricity may continue to constrain growth.n transport and commercial infrastructure. Without large new investments andimproved efficiency, economic growth will lag. In mobilizing resources in allthese areas, China could profitably make use of foreign borrowing. Finally,the rising share of the elderly in China's population (related to the slowdownin population growth) means that more resources will have to be devoted tomaintaining their consumption levels, especially in the decades after 2000.

19. Poor motivation and inefficient utilization of labor in the statesector of the economy are major problems which can be solved only by coor-dinated reforms in labor allocation, the v-age system, enterprise management,and social services, among other things. .leforms in the system of educationand training to develop China's "human capital" potential also are crucial.Backward technology and inefficient use of existing technology must beaddressed by a combination of reforms, appropriately directed investment, andtransfer of advanced foreign technology. Irrational location of factories,suboptimal scale of many plants, and poor utilization of physical capital ingeneral are related problems.

20. If reforms successfully transform the economic system, with a bene-ficial impact on growth and efficiency, a new set of issues will come to thefore, as the plan proposal recognizes. Management of a reformed economy withindirect fiscal, monetary, and other instruments is a major issue (see para.13 above). In this context, maintaining an adequate saving rate (if theGovernment no longer accouncs for the bulk of aggregate saving) and avoidinginflation (as well as deep cyclical downturns) will be major goals. Assuringan adequate minimum standard of living for the population and an appropriatelevel of social services will become a major challenge as enterprise and ruralcommunal responsibilities in these areas are reduced. The problem of poor,

backward rural areas in various parts of the country will continue to requireattention. Redistributing financial resources to these areas through thefiscal system, easing restrictions on migration out of the poorest areas, andlowering nonagricultural wages to make investment in them more attractive aresome options for alleviating poverty.

21. In order to mobilize the external resources needed for rapid, sus-tained growth the plan proposal calls for export growth of 40-50 over thenext five years, greater efforts to attract foreign investment, and increasedcommercial borrowing. If exports grow at 8X p.a. between 1984 and 1990 andimports grow at 9Z p.a., China would have a relatively modest current accountdeficit of around $4-5 billion p.a. during the remainder of this decade,equivalent to about 1% of CNP. This implies that the present debt serviceratio would ir.crease only moderately by 1990. If China's exports grow moreslowly, imports will probably have to be cut back because a higher borrowingtarget, though feasible in terms of debt service indicators, would probablyrun into supply constraints as China would become one of the largestdeveloping country borrowers. This highlights the need for continued exportgrowth in order to meet other plan objectives and service greater commercialborrowing. The plan proposal recognizes that greater use of exchange rate andpricing policies will be needed to encourage export growth.

22. Even with continued good export performance, China will have sub-stantial external capital requirements during the remainder of the decade.Under the trade growth assumptions outlined above (exports growing at 8Z p.a.and imports at 9% p.a. during 1984-90), the current account deficit would beover $5 billion in 1990 and the gross borrowing requirement would be about$6.5 billion. If export growth fell to 6% p.a. during this period and imp ,rtscontinued to grow at 9% p.a., the current account deficit would reach$14 billion by 1990. Although the plan proposal calls for increased borrowingat commercial rates, access to concessionary capital will play an importantrole in sustaining China's growth. China also has a claim to concessionarylending because it is still one of the poorer countries of the world. ButChina's access to concessionary capital for financing development and modern-ization is limited; apart from Bank Group funds, a significant amount of con-cessionary capital is likely to come only from Japan and a few other bilateraldonors and will probably average no more than $500-600 million p.a. during therest of the 1980s.

PART II - BANK GROUP OPERATIONS

23. To achieve the target growth rates envisioned in proposals for theSeventh Five-Year Plan, to increase efficiency and innovation, and to maintainequity in distribution, China will need continuing economic reforms. Largeinvestment will be required and China will need to import more technology,increase trade and expand investment. In the next few years, therefore, theBank can best assist China by increasing its access to foreign rechnology andcapital and supporting the implementation of reforms that will help toincrease the efficiency of resource use and reduce poverty.

- 8 -

24. To address China's objective of updating technology and improveefficiency, the Bank will play the role of intermediary. In transportation,energy, industry, agriculture and the social sectors, the Bank will contributeto technology transfer by bringing the Bank's experience to bear on projectdesign and implementation and by helping China to seek appropriate technicalsolutions through international competitive bidding, training, and foreigntechnical assistance.

25. Bank assistance will be closely linked with the Government's reformefforts. There are five major elements common to both rural and urban refcrmsin China that will be the focus of the Bank's involvement. First, institu-tional change, involving both the separation of economic and administrativefunctions and further decentralization of decision making, will extend toevery sector in which the Bank is involved. Second, financial sector .eform,primarily development of financial institutions, has become a focus of Bankassistance. Third, improving planning and project analysis will be criticalto reform in sectors such as agriculture and industry, where decisions are nowbeing made by households and independent enterprises as well as in infra-structure where direct government involvement will be required. The Bank willtherefore continue its emphasis on introducing appraisal methods and financialplanning as well as analysis of intersectoral issues. Fourth, the Bank willbe involved in the Government's major program of price reform and developmentof indirect levers such as control via money, credit and fiscal policies. AndfinalLy, the Bank will support reforms in health, education and other socialservices and measures, in particular, to address the problems of poor regions.

Economic and Sector Work

26. The Bank's economic and sector work aims at expanding the Bank'sunderstanding of the structure of the Chinese economy and the direction of itsmovement and introducing to the Government new tools of economic management.This work lays a foundation for lending and for a dialogue with the Governmenton issues of reform and development. Past work has included two majoreconomic reports, studies on sectoral investment analysis and planning, andcollaborative research with Chinese institutions. The Bank has also organizedseminars on macroeconomic and sector issues.

27. Over the next two years, the Bank will carry out a large program ofsector work to follow up on issues identified in the most recent economicreport and analyze policy options. In this program, the Bank will examinealternatives for developing the financial system, foreign trade andinvestment. It will also analyze issues of intersectoral investmentcoordination and development of resource-poor regions. One such study isalready under way in Gansu province to improve the efficiency of developmentand reduce poverty. Research on urban development, transport planning andregional industrial development will also be undertaken, and regionalindustrial subsectors will be reviewed. Collaborative studies with Chineseresearch institutions will continue. An ongoing study of management andguidance of state enterprises will be followed by a study of collectiveenterprises, which are expected to become increasingly important industrialorganizations in the reformed system.

-9-

Lending Operations

28. Since China's change of representation in the Bank Group inKay 1980, 37 projects involving lending of $3,709.9 million to China have beenapproved. Of the projects, twelve have been in the agriculture sector, sevenin energy, six in transport, four in industry, four in education, two intechnical cooperation and one each in health and water supply. In FY85, IFCmade its first investment in China of $17.02 million in automobile manu-facturing. Annex II contains a summary statement of these loans, credits andIFC investment as of March 31, 1986.

29-. In addition to the proposed project and the already approvedprojects for second rural credit, third industrial credit, second technicalcooperation credit, provincial universities, third railway, Tianjin port andfresh water fisheries, we expect to present to the Board this year anadditional power project and projects for petroleum and health. For FY87 andbeyond, we expect the China lending program to continue to grow from currentlevels. Infrastructure projects in energy and transport will remainpriorities. Technical renovation of enterprises, particularly in industry,will be given greater attention and support as will the regional approach toproject development, now being used to assess the needs of Gansu province.

30. In tae energy sector, future Bank lending will be aimed at improvingefficiency of energy consumption and expanding energy production. Forexample, in the coal subsector, we will assist in upgrading the facilities andoperations of existing mines and in transferring improved technology for minesunder construction or in operation. In power, we will provide for technologytransfer, staff training and institution building. Through a power tariffstudy, we will seek to introduce a tariff system based on marginal cost and toincrease the awareness of the need for a nationwide power system developmentprogram. In the petroleum subsector, the rationale for Bank involvement willlie in the identification, packaging and transfer of specialized technologiesas well as in the strengthening of investment and resource use planning andmanagement capabilities.

31. Future transport projects will both upgrade technology andstrengthen institutions. In roads, major changes in organizatinn and financ-ing will be required as a result of administrative decentralization and intro-duction of the production responsibility system in rural areas. In railways,we will focus on technologies to improve domestic production of railway equip-ment and materials in addition to our work on line construction and electrifi-cation. We also intend to broaden our involvement in ports to include coastalshipping and inland water transport. For all transport subsectors, we willsupport efforts to improve financial analysis and investment planning.

32. Agriculture lending wLll focus on developing institutions to provideservices to individual farmers and to monitor and stimulate change in the paceand pattern of agricultural development. The shift from grant to loan financeand the increased autonomy of the rural banking system will be supportedthrough rural credit projects. We will continue to assist with the training,research, extension, and other service activities of the ministries concernedwith agriculture. In addition, we expect to finance programs for specialized

- 10 -

agricultural development such as livestock and fisheries, and for irrigationand area development.

33. Bank lending in industry, as in agriculture, will focus on strength-ening of financial intermediaries which provide credit to state and collectiveenterprises. In addition, we expect that there will be large regional pro-jects in fertilizer, cement and machine tools and other subsector projectsconcerned with upgrading technology and improving organization and management.

34. Bank lending in education will gradually be broadened beyond thepresent concentration on higher education. For example, we will financevocational and technical education which is now being given great emphasis inChina. In view of the Government's recent decision to universalize access toprimary and lower secondary education, another major aim of education lendingwill be to assist with basic education, particularly in poor rural areas. Inthis context, support for teacher education will be given priority.

35. Project preparation in the urban sector is currently concentrated inShanghai on efforts to improve services, especially in environmental upgradingand housing, and development of municipal institutions. Future lending isexpected to include support for development of medium-size and small urbanareas in specific provinces. In addition, we expect to continue lending forrural water supply. Bank lending in health will provide access to new medicaltechnologies for more efficient health care in both the lingering problems ofcommunicable disease, primarily in poor rural areas, and the emerging problemsof chronic disease. This will involve further support for medical trainingand planning and management of service delivery systems. Projects will alsosupport the reform of systems for supplying and financing health services.

36. Cofinancing with multilateral and bilateral agencies has beenarranged for projects in coal, power, agriculture and rural water supply andwill remain a feature of our assistance program. We will explore furtheroptions for cofinancing with export credit agencies. Commercial bankcofinancing and the use of B-loans also appear viable, particularLy as Chinaincreases the overall volume of its foreign borrowing. In technical assis-tance, we will continue to incorporate into projects components for training,overseas study, and access to foreign expertise. In addition, we will be acooperating agency for a second UNDP umbrella project in China. EDI activ-ities remain an important element of the Bank's program and in coming yearswill provide an extensive program of policy seminars for senior Chineseofficials, and economic and financial management courses and sector-specifictraining for officials from core and line agencies.

Implementation

37. Project implementation is generally proceeding well. Most projectagencies, as well as the Ministry of Finance (MOF) and the State PlanningCommission (SPC), have established and staffed offices to handle Bank pro-jects. Disbursement performance has also been satisfactory. Special accountshave been established for many of the approved projects and have helped tospeed disbursements. In October 1985, the Bank opened a resident office inBeijing to support further expansion of the lending program, accelerate pro-ject preparation, improve project implementation and further economic andsector work.

- 11 -

PART III - THE ENERGY SECTOR AND THE POWER SUBSECTOR

Overview

38. China is the world's fourth largest producer and third largestconsumer of comercial energy. Coal is by far the most important source ofenergy in China, accounting for some 70X of its commercial energy consump-tion. Oil production has increased rapidly over the last three decades tobecome an important source of both commercial energy and export earnings,representing about 18% and 20Z of the respective totals. About 20% of oilproduction and 1% of coal production are currentLy exported. Natural gas(21), hydroelectric power (5%) and limited quantities of shale oil and geo-thermal power make up the balance of commercial energy. Non-commercial energyresources supply energy equivalent to about 401 of commercial production.

39. China's achievement in developing its energy resources over the lastthree decades has been remarkable. The annual production of coal hasincreased from some 60 million tons in 1952 to 760 million tons in 1984.During the same period, annual oil production increased from 0.1 million tonsto 114 million tons, and annual electricity generation increased f gm about7.3 TWh to 377 TWh. However, the recent economic report on China - hasconcluded that slow growth of energy supplies could constitute a constraint tothe Government's efforts to quadruple the gross value of industrial andagricultural output (GVIAO) from 1980 to 2000. To ensure sufficient energyfor economic development, China will need to increase coal production beyondcurrent targets for the year 2000 and meet at least the official outputtargets set for all types of energy resources. Meeting these targets willrequire the strengthening of planning and coordination among the diversecomponents of the energy sector and also the transportation sector. Inaddition, serious subsectoral constraints on technology, logistics, managementand financing need to be removed.

40. In view of the complexity of the problems anticipated in the attemptto balance supply and demand, it is crucial for China to formulate andimplement a comprehensive and coherent long-term strategy directed at bothefficient energy development and utilization. The Government, in its SixthFive-Year Plan (1981-85), accorded high priority to development of the energyand transport sectors, and these objectives will be further emphasized in theSeventh Five-Year Plan (1986-90). The Bank has supported the Government'sobjectives and formulation of a coherent sectoral strategy through economicand sector work as well as lending operations.

1/ "China: Long-Term Issues and Options," Report No. 5206-CHA, May 22,1985.

- 12 -

Resource Endowment

41. China is well endowed with primary energy. Coal and lignitereserves are concentrated largely in the north and northeast, which have about70% of the total recoverable reserves (640 billion tons). Future plans callfor increasing coal production significantly, but difficulty in transport(essentially a shortage of railroad capacity) appears to be a serious obstacleto achieving this objective. Biomass fuels are the second most importantsource of energy in China, accounting for an estimated 30% of finalconsumption. Recoverable reserves of oil onshore have been variouslyestimated between 6-15 billion tons, and estimates for offshore oil reservesrange from 3-10 billion tons. Recoverable reserves of non-associated gas haveso far been estimated at about 3 trillion cubic feet tTCF), about 90% of whichare located in Sichuan province. In addition, recoverable reserves ofassociated gas are estimated at about 1.8 TCF. Unofficial estimates of oilshale in China place reserves at 400 billion tons. China's hydropowerpotential, among the largest in the world, is estimated at 1900 TWh p.a., ofwhich 87 TWh p.a. have so far been developed. A major constraint has beenthat the bulk of the undeveloped potential is in four major basins insouthwestern and northwestern China, where large-scale development wouldrequire transmission distances of 1,200-1,500 km to major industrial loadcenters. The known uranium reserves in China are sufficient to sustain 15,000MW of nuclear power plant for 30 years. Although potential sources ofgeothermal energy are abundant in the mountainous southwestern part of thecountry, their role is likely to remain limited due to their distance frommajor load centers.

Efficiency of Energy Use

42. China's consumption of energy per unit of CDP is well above that ofany major developed or developing country. Several factors contribute to thehigh intensity and relative inefficiency of fuel use, which is particularlyevident in the industrial sector: the structure of industrial production, thescale of industrial units; the raw materials used; the technology employed;and industrial organization and operating practices. In the late 1970s, itbecame evident that the high rate of energy consumption could not be sus-tained. The Government took administrative measures to reduce the rapidgrowth of energy consumption, including quotas, adoption of energy efficiencymeasures, retrofitting, marginal adjustments of industrial structure and theimportation of energy efficient technology. These measures have had somesuccess. Primary commercial energy consumption per unit of industrial andagricultural ouput has been dropping steadily since 1979.

43. As a result, there has been an impressive improvement in overallenergy efficiency during the past five years. Energy consumption per unit ofGVIAO declined by 7% p.a. during 1979-81, and by 3% p.a. during 1982-83.Preliminary data indicate a further reduction of almost 7% in 1984. Technicaland operational improvements are estimated to have accounted for about 40% ofthese energy savings. The other 60% came from a decline in the relativeimportance of heavy industry, the closure of some inefficient small-scaleplants and other structural changes within industrial subsectors.

- 13 -

44. Although the recent administrative measures have been effective inpromoting energy efficiency, the process of fine-tuning the current system toprovide economic signals to consumers and incentives for further improvementsin efficiency will become increasingly complex. There is thus a needinitially to complement and gradually to replace the administrative controlswith a more flexible allocation system that would provide greater autonomy toindividual entities. The system would increasingly rely on an energy pricestructure that reflects the relative scarcity of each source of energy. Thiswould influence consumption in the direction of the optimal least-cost mix ofenergy sources required to meet future demand. Such reform of the allocationsystem would be a key component of a strategy to stimulate the adjustments inthe structure of energy consumption which are necessary for balancing energysupply with demand in the long-term.

The Power Subsector

45. Power development in China has registered high rates of growthduring the last three decades. Annual per capita generation of electricityhas grown from 8 kWh in 1949 to 363 kWh in 1984. Of the total installedcapacity of 79,920 MW in 1984, 32Z was hydro and 68% was thermal. Power isdistributed through 30 grids, of which 13 (representing over 80% of the totalcapacity) exceed 1,000 MW each. Energy sales in 1984 reached 319 TWh, havinggrown at an average 13.8% p.a. since 1949. Of these sales, 80% representedindustrial consumption, 9% agricultural, 1% transportation and 10% residentialand urban commercial usage. About 60% of the population has access toelectricity.

The Market for Electricity

46. Electricity consumption increased at an average rate of 10.7% p.a.between 1965 and 1979, but this pace slowed during 1979-84 when it averagedonly 6.4% p.a. The major reason for the lag has been the inability of thepower subsector to fully meet demand, particularly in China's major industrialcenters. The power shortage countrywide was estimated at about 40 TWh p.a.,or more than 15% of industrial electricity requirements. The recent economicreport on China estimates that by the year 2000 generation of 960-1,290 TWh(equivalent to 109,000-178,000 MW in additional generating capacity) would beneeded to meet the requirements of China's national income growth targets.

47. The share of electricity in total energy consumption has histori-cally been low compared with that of other countries. The principal factorsunderlying this low share appear to be: (a) the relatively low level of elec-tricity use in the residential and commercial sectors; and (b) the relativeinefficiency of fuel consumption in the industrial sector which decreases therelative share of electricity in total industrial energy consumption. As aresult of China's rapid development in recent years, the share of electricityin total energy consumption has been increasing despite serious supplyconstraints, rising from about 13% of final commercial energy use in 1970 toabout 15% in 1975 and 18% in 1980. This share is expected to continue togrow, reaching 26-27% in year 2000 - is a level comparable to that currentlyprevailing in other major developing countries. The manufacturing sector isprojected to continue to account for at least three-quarters of final electri-

- 14 -

city consumption, although electricity use per unit of value added is likelyto fall slightly. ELectricity use in residential and commercial sectors isexpected to grow at 11-13% p.a., reflecting a gradual improvement in livingconditions and rapid growth of the service sector. Electricity use in trans-portation is also projected to grow, reflecting the increase in the share ofelectric locomotives in total railway haulage.

Institutions

48. In the Government reorganization of 1982, the Ministry of WaterResources and Electric Power (MWREP) was designated to oversee electric powerdevelopment and water resource management, including policymaking and systemplanning as well as the design, construction and operation of major power andwater resource projects. Under MWREP, there are six regional power adminis-trations which coordinate operations and load dispatching for the regionalpower grids and formulate long-term development plans for approval by MWREPand SPC. Below the regional administrations are 22 provincial and municipalpower bureaus operating as parts of the regional grids, while eight otherpower bureaus still operate in isolation.

Tariffs

49. Electricity tariffs have in general remained constant since 1953.[iunough minor rcional adjustments over the years, tariffs have becomereasonably uniform throughout the country, except in the northeast where costshave been lower because electricity was supplied predominantly by hydro-powergeneration, even in the early years. The average revenue per unit has beenincreasing due to the growing share of consumption by light industries,commercial and residential users which pay higher rates. The national averagewas about 6.9 fen/kWh (USC2.3/kWh) in 1984.

50. In the context of Chinese accounting practices, which in the pastdid not include in costs any return on capital (other than depreciation), thistariff yielded satisfactory financial performance for the power sector as awhole. However, this situation is changing because of recent changes in theGovernment's financial policies. Since 1982, capital investments in the powersector have been financed through domestic and foreign borrowing rather thanthrough Government budgetary allocation as in the past. In addition, fuelcosts have been rising and are expected to rise further, particularly with theongoing increases in coal prices and the expected increases in rail tariffs(which will affect delivered coal costs). As a result of these changes in thecosts of electricity, and in line with the Government's policy to reform itseconomic allocation system, the Government is considering a review of elec-tricity tariffs. To assist the Government with this review, the project willinclude a tariff study that is designed to (a) transfer a practical, state-of-the-art tariff analysis methodology to China; (b) serve as a reference forfuture power tariff adjustments in the East China region; and (c) serve as amodel for tariff reform in other regions of China.

- 15 -

Manpower and Training

51. MWREP has about 2.5 million employees of whom about 51% are directlyunder the Ministry and about 49Z are under the provincial administrations. Ofthe total, less than 30Z have received formal education beyond junior secon-dary school level. In general, the quality of staff intake has been low;there is a severe shortage of trained manpower, particularly for administra-tive and technical positions.

52. In the late 1970s, MWREP initiated a long-term training program toupgrade the quality of its staff at all levels. Although MWREP has organizedthe program, much of the implementation has been carried out by the provincialpower bureaus. The Ministry's immediate goal is to establish a comprehensiveprogram that will systematically provide training to existing staff. MWREP isalso strengthening its capacity for full-time training of potential employeesthrough its Education Department which sponsors 4 universities, 39 technicalcolleges, television and correspondence universities as well as 27 secondary-level vocational schools. The total number of students enrolled in theseinstitutions was 17,700 in 1984. About 15,300 graduates are assigned to MWREPannually - 7,000 at four-year college level and 8,300 at junior college level.These programs, supplemented by periodic in-service short courses for manage-rial and technical staff and on-the-job training for workers, are expected togradually lead to improved productivity in the sector. Tiie quality of staffwill eventually improve, but the rate of change is still low. In support ofthese activities and the project entity's objectives for human resource devel-opment, the proposed project would include a training component.

Planning

53. Power system planning at the regional and provincial levels iscarried out by the regional electric power administrations and the provincialelectric power bureaus. Overall planning is the responsibility of the Plan-ning Department of MWREP which reviews the plans proposed by the regionaladministrations and provincial bureaus for the short-term (annual), medium-term (5-years) and long-term (10-15 years). For major hydro projects, theinvestigation, planning and design are carried out by the regional hydro-electric investigation and design institutes. For system expansion, trans-mission lines and substations above 110kV and major thermal projects, thestudies, planning and design are carried out by the regional electric powerdesign institutes. MWREP, like other line ministries, operates under theoverall supervision of SPC and the State Economic Commission (SEC), in whichare vested the ultimate authority for project approval, budget allocation,financing arrangements and supervision.

54. Under current plans, coal-based thermal power generation willcontinue to provide at least three quarters of total generation through theend of the century. There are important issues in this area concerning plantlocation and transmission network planning. For example, the locationaldecisions will have to carefully balance the advantages of plant location atthe coal mine sites -- requiring long-distance transmission to major loadcenters -- versus development near load centers and port areas to which largequantities of coal would be transported by rail and/or water. Thus planning

- 16 -

decisions have to take into account factors such as the regional distributionof coal resources, regional differences in coal development costs, relativecosts of coal transportation and power transmission, environmental implica-tions, and external conditions such as the availability of water for coolingpurposes.

55. As the planning of China's power subsector development becomesincreasingly complex, up-to-date system planning techniques will need to beadopted, particularly to evaluate the feasibility and optimal timing of large-scale projects with long lead times and to make decisions about the generatingplant mix, power plant location, and grid architecture. To assist MWREP inacquiring these techniques, arrangements were made under the second powerproject (Loan No. 2493) for introducing least-cost investment programmingtechniques through the assistance of the International Atomic Energy Agency(IAEA). The Water Resources and Electric Power Economic Research Institute(WREPERI) in Beijing has assisted the East China Electric Power Administration(ECEPA) to formulate a least-cost development program for the East China powergrid.

Technology Transfer

56. The transfer and development of modern technologies will be crucia.if China is to increase energy production and efficiency sufficiently coachieve its broader economic goals. Technology transfer is especially impor-tant for thermal power plants, where increasing deployment of high-pressure,large-scale units and greater development of cogeneration could reduce netfuel consumption by some 20Z by the year 2000, thus greatly alleviatingpressures on coal supplies and transportation. The Government is alreadyimplementing this strategy through the gradual introduction of standardized300 MW and 600 MW coal-fired units. The Bank would assist in the provision ofthe state-of-the-art technology in the construction and operation of 600 KWunits under the proposed project.

Subsector Objectives and Policies

57. The basic objectives of the Government for the power subsector areto modernize, increase efficiency, and expand the power system at a ratesufficient to meet the requirements of industrial development. To achievethese objectives, the Government is pursuing the following policies:

(a) a phased increase in the financial autonomy of enterprises;

(b) gradual introduction of a more rational pricing system;

(c) introduction of modern techniques in project design and systemplanning;

(d) acceleration of hydro development;

(e) development of mine-mouth, coal-fired thermal stations supplementedwhere necessary by stations located near port areas and loadcenters;

- 17 -

(f) construction of extra high voltage transmission lines to transmitpower from remote hydro sites and mine-mouth thermal stations andfor interconnection between regions;

(g) progressive replacement of medium- and low-pressure thermal unitswith larger size and higher pressure units to improve fuelefficiency, and the conversion of oil-fired units to coal-firing;

(h) development of nuclear units in areas where other forms of energyare scarce; end

(i) improvement of energy efficiency.

Subsector Issues

58. Shortage of Generating Capacity. In spite of considerable growth ingenerating capacity, supply has lagged behind demand and shortages arereported in the Northeast, North, South and East China grids. The powershortage countrywide was estimated at about 40 TWh in energy in 1984. Demandmanagement has been carried out in these regions by staggering holidays,changing working hours, and load shedding during shortages according to agreedpriorities.

59. Inadequate Transmission and Distribution Facilities. The develop-ment of transmission lines and substation facilities has lagged behind that ofgeneration. No interconnection has yet been made between regions and thereare about eight provincial grids still operating in isolation. MWREP hasestimated that China has a shortage of about 10,000 km of transmission linesat voltages above 110 kV. Similar shortages exist in substation capacity.Lower voltage subtransmission and distribution facilities are currently beingfinanced by the provincial governments or municipalities. The local authori-ties usually do not allocate sufficient funds for the improvement and exten-sion of these facilities which results in high system losses and inefficientuse of energy.

60. Financial Constraints have been a major factor in the shortage ofgenerating capacity and the inadequacy of transmission and distributionfacilities. In the past, limited budgetary allocations have caused consider-able slow-down of power projects. Recently, the funding mechanism has under-gone considerable revision; this, along with the possibility of increasingthe level of sectoral self-financing through tariff increases, should increasethe availability of financing.

61. Technology Transfer and Training. Despite some progress, China'stechnology in thermal power plant design, least-cost investment programming,load dispatching and application of computers falls short of levels prevailingin developed countries. The age profile of the engineering staff is highlyskewed; most are in their 50s and 60s. Only strenuous efforts to train younggraduates now emerging from universities will narrow the gap. This mayinvolve establishing specialized training institutes as well as providing on-the-job training within the country and training abroad at utility companies

- 18 -

and other institutions. A greater understanding of the subsector's trainingrequirement in necessary before an appropriate solution can be developed andencouraged. The Bank plans to address this issue in the context of asubsector-oriented training program.

Role of the Bank

62. The Bank's strat:egy for involvement in China's power subsector hasbeen to use its lending operations to assist the Government in solving tech-nical problems and rationalizing investment decisions. The Bank is implement-ing this strategy by introducing to China modern methods of system planning,project preparation, construction, operation and utility management.

63. The first power project (Lubuge hydroelectric, Loan No. 2382) willprovide 600 MW of generating capacity and associated transmission system tothe Yunnan power grid. The project successfully promoted cofinancing arrange-ments, including export credits for the major electrical and mechanical equip-ment and bilateral grants for engineering services. It also introducedinternational competitive bidding for civil works and modern constructiontechniques for a rockfill dam, power tunnel and underground powerhouse, andenhanced the financial autonomy of the Yunnan Provincial Electric Power Bureau(YPEPB). The project included training for staff of the Kunming HydroelectricInvestigation and Design Institute (KHIDI), the Lubuge Project ConstructionManagement Bureau (LPCMB) and training for YPEPB in design, constructionmanagement, quality control, accounting and cost control through consultantsservices.

64. The second power project (Loan No. 2493 for a 500 kV transmissionline from Xuzhou to Shanghai) will transmit a large block of power from amine-mouth coal-fired thermal power station at Xuzhou (500 MW in operation and4 units of 200 MW under construction) to the East China power grid. Thisproject also successfully promoted cofinancing with a bilateral loan for theYangtze river crossing works and rrovided for the transfer of the latesttechnology in 500 kV transmission line and substation design, construction,operation and maintenance to the East China Electric Power Design Institute(ECEPDI) and the Jiangsu Provincial Electric Power Bureau (JPEPB). A trainingcomponent included the establishment of a treining center and equipment fortwo other technical schools in Nanjing and Shanghai for the operation andmaintenance of 500 kV transmission lines and substations.

65. Under the proposed project the Bank would finance a fully integratedstate-of-the-art 600 KW coal-fired unit that will be used to set technical andeconomic performance standards for a series of same-size units to be installedin China and a 500 kV transmission system connected to the East China powergrid. Cofinancing would be sought for the second unit. The project wouldalso introduce the concept of a least-cost expansion plan as a basis forevaluating power projects, and is expected to contribute to the formulation ofa more rational tariff through a tariff study. A program to meet the needsfor project-related training and long-term human resources development wouldalso be included.

- 19 -

PART IV - THE PROJECT

66. The project was identified in September 1984 and appraised in June1985. Negotiations were held in Washington on April 14 to 16, 1986, with adelegation headed by Mr. Luo Qing, Deputy Director, External FinanceDepartment, Ministry of Finance. A Staff Appraisal Report (No. 5889-CHA,dated May 5, 1986) is being distributed separately to the ExecutiveDirectors. A map (IBRD No. 19176) showing the project location is attached.Supplementary project data are provided in Annex III.

Project Objectives

67. The objectives of the proposed project are: (a) to provideadditional electric power to support China's economic growth; (b) to makeefficient use of China's abundant coal reserves; (c) to build extra highvoltage transmission lines for connecting optimal generating sites with loadcenters and facilitate eventual interconnection; (d) to transfer the latesttechnology in plant design and construction management of 600 MW thermalgenerating units; (e) to introduce more appropriate techniques of dynamicleast-cost investment programming; (f) to initiate dialogue in utilitymanagement and financial planning; and (g) to transfer the most up-to-datetariff analysis methodologies and provide a reference for future tariffadjustments.

Project Description

68. The project would comprise:

(a) construction of a coal-fired thermal power plant, including coalunloading facilities at Beilungang with two generating units of600 MW each;

(b) construction of two single circuits of 500 kV transmission lines andtwo associated substations to interconnect with the East China powergrid and ZPEPB's existing transmission system;

(c) provision of consulting services for engineering, detailed design,procurement and construction management of the thermal power plant;

(d) a training program; and

(e) a tariff study for the East China power grid.

Project Management and Implementation

69. The beneficiary of the proposed project would be the Zhejiang Pro-vincial Electric Power Bureau (ZPEPB), a state-owned enterprise under the di-rection of MWREP through the East China Electric Power Administration (ECEPA).ZPEPB is assigned responsibility by the Government for the execution withinits ju-isdiction of the government program for power generation, capital in-vestment, power sales and tariffs, employment and payroll, materials consump-tion and tax and profit remittances to the center. A charter of ZPEPB accept-able to the Bank has been issued.

- 20 -

70. ZPEPB is headed by a director who is appointed by MWREP. Threedeputy directors and a chief accountant are functionally responsible to himfor capital construction; production, supply and technical matters; labor,personnel and training; and finance. Operations are carried out through anumber of units engaged in power generation, distribution, construction, andrepair. Each of these units is headed by a director with line responsibilityto the director of ZPEPB.

71. As of the end of 1984, ZPEPB employed about 27,800 workers. Exceptfor the core technical and managerial personnel who are assigned by the HWREP,virtually all of ZPEPB's employees are recruited locally. They are hired on apermanent basis with the exception of some contract labor for constructionwork. Of the total employed, only about 15% have received technical trainingequivalent to or above college level. The majority of the workers have lessthan nine years of formal education. ZPEPB administers through its EducationDivision four institutes for the training of junior engineers, mid-level tech-nicians and skilled workers. The training capacity is not adequate to meetthe long-term need. The quality of teaching staff and training facilities andequipment also need to be upgraded and modernized. A training component hastherefore been included in the proposed project.

72. The feasibility studies for the project were carried out by the EastChina Electric Power Design Institute (ECEPDI). Engineering and detaileddesign of the project are being carried out by ECEPDI with assistance from aconsulting engineer. Bidding documents for boilers and turbine generatorswere issued in December 1985. Bids were opened on March 24, 1986 and are nowbeing evaluated by ZPEPB with the assistance of the consulting engineer. Theconstruction and installation of power station, transmission lines andsubstations would be the responsibility of ZPEPB, which would contract all orpart ."• the works to domestic contractors through local competitive bidding.Site preparatory work began in January 1986. Construction supervision andmanagement would be carried out by a construction unit under ZPEPB with theassistance of a consulting engineer. The facilities when constructed wouldremain in the ownership of ZPEPB, which would have ultimate responsibility fortheir operation and maintenance.

73. The commissioning dates of the first and second 600 MW units arescheduled for December 1990 and December 1991, respectively. The projectcompletion date is June 30, 1992. As the Bank loan would cover the first unitonly, the closing date of the Bank loan has been set at June 30, 1992 whichwould allow adequate time for payment of retention monies.

Technical Assistance and Training

74. EBASCO, a U.S. firm, has been appointed as the Consulting Engineerin accordance with Bank Guidelines. Phase I services for project preparationinclude: (a) review of conceptual design prepared by ECEPDI; (b) preparationof a detailed cost estimate and construction schedule; (c) preparation ofbidding documents; and (d) assistance in bid evaluation and contracting.About $1.8 million have been provided for this purpose as one of the subpro-jects under the Technical Cooperation Credit (Cr. 1412-CHA).

- 21 -

75. Phase II services would include technical assistance for: (a) engi-neering and detailed design; (b) review and approval of manufacturer's shopand design drawings; (c) inspection, coordination and expediting; (d) con-struction management; and (e) testing, startup and commissioning. Theseservices would be financed under the proposed Bank loan.

76. Training will be carried out in three categories: (a) trainingrelated directly to the project, including training of staff in design, con-struction, operation and maintenance of a 600 MW thermal power station;(b) training related to long-term human resources development, includingextension and upgrading of the four existing training institutes; and(c) study tours and training for managers of ECEPA and provincial electricpower bureaus in utility management and financial planning. ZPEPB will beresponsible for training under (a) and (b); ECEPA will be repsonsible for thatunder (c). Assurances have been obtained that ZPEPB and the Government wouldcarry out this training in accordance with a program acceptable to the Bank.

Tariff Study

77. A tariff study for the East China power system will be carried outto review the level and structure of the power tariff on the basis of long-runmarginal cost. The study will also take into account other considerationssuch as the financial requirements and objectives of ECEPA and ZPEPB. Thestudy will be carried out by ECEPA, ZPEPB and WREPERI with the assistance ofBank staff. Assurances have been obtained that such a study will be carriedout in accordance with a work program acceptable to the Bank.

Cost Estimates

78. The cost estimates are based on end-1985 price levels. Physicalcontingencies include 5% for foreign costs, as the cost of equipment forthermal power plants is well-defined, 15% for civil works, and 10% for otherlocal costs. Price escalations for both foreign and local costs are calcu-lated on the basis of the projected international inflation rates of 7.0% for1986-87, 7.5% for 1988, 7.7% for 1989, 7.6% for 1990 and 4.5% for 1991 andthereafter. The total financing required is $1,044.9 million equivalent,including interest during construction. The project would be exempted fromcustoms duties and taxes.

Financing Plan

79. The proposed Bank loan of $225.0 million would meet about 24% oftotal project cost or about 39% of foreign exchange requirements. It would beused to cover the foreign costs of the following components of the first unitand common facilities for the first and second units:

(a) construction equipment for civil works and plant installation;

(b) steel piling and other steel products (net imported items);

(c) boiler island package;

- 22 -

(d) turbine-generator island package;

(e) coal handling package;

(f) ash disposal system package;

(g) instrumentation and control package;

(h) electrical equipment package;

(i) equipment and materials for the first circuit of 500 kV transmissionlines and substations;

(j) consulting services;

(k) hardware and software of computers for ZPEPB and WREPERI; and

(1) training facilities (including a simulator) and services andoverseas training; and

(m) a tariff study.

80. The foreign exchange requirement of $576.1 million is expected to bemet by the proposed Bank loan ($225.0 million), commercial bank loans and/orexport credits ($156.0 million) and local bank loans ($195.1 million). Thelocal cost ($468.8 million equivalent) is to be financed through local bankloans. Cofinancing through commercial bank loans or export credits is beingconsidered for the financing of the second unit.

81. The proposed Bank loan would be made to China at the standardvariable interest rate for a 20-year term including five years of grace.Assurances were obtained that the Government would onlend the proceeds of theBank loan to ZPEPB under a subsidiary loan agreement with a 20-year term,including five years of grace at an interest rate of 8.5% p.a., and that ZPEPBwould bear the commitment charges and foreign exchange risk (between thedollar and the Borrower's currency). A Project Agreement will be concludedbetween the Bank and ZPEPB. Execution of an acceptable subsidiary loan agree-ment between the Goverament and ZPEPB and approval of the Loan Agreement bythe State Council would be conditions of loan effectiveness.

Procurement and Disbursement

82. Equipment and materials financed under the prorosed Bank loan willbe procured by international competitive bidding (ICB) in accordance with theBank's Procurement Guidelines. Qualifying domestic manufacturers would beeligible for a preference in bid evaluation of 15X or the import duty, which-ever is lower. Equipment estimated to cost less than $300,000 pef contract upto an aggregate amount of $5.0 million could be procured through limitedinternational bidding (LIB) on the basis of bids invited from at least threequalified suppliers eligible under the Guidelir.es. The civil works and planterection which would not be financed under the Bank loan would be procuredthrough local competitive bidding (LCB).

- 23 -

83. Details of procurement if goods and services are shown in the tablebelow:

PROCUREMENT ARRANCEMENTSt$ million)

Procurement method TotalICB LIB Others/b N.A. cost

Site development - - 25.2 - 25.2Civil works - - 120.8 - 120.8Equipment and materials 234.0 /a 5.0 508.1 - 747.1

(211.9) (5.0) - (216.9)Engineering and consult-ing services - - 8.7 - 8.7

(4.4) (4.4)Training - - 6.5 - 6.5

(3.5) (3.5)Supervision andadministration - - - 18.0 18.0

Tariff study - - 0.7 - 0.7(0.2) (0.2)

Total 234.0 5.0 670.0 18.0 927.0(211.9) (5.0) T1) - (225.0)

/a Figures in parentheses are the respective amounts financed by theproposed Bank loan.

;b "Others" include procurement of equipment and materials for the secondunit, goods procured locally, civil works and plant installation to beexecuted by various construction companies, and other local costs.

84. In the procurement of the first unit financed under the Bank loan,bidders were encouraged to bid for the second unit on a cash basis with anoptional financial offer. The Government will determine the financing plan ofthe second unit based on the terms and conditions of financial offers made.All bidding packages for goods financed by the Bank and estimated to cost over$1.0 million equivalent would be subject to the Bank's prior review ofprocurement documents, which covers nearly all of the foreseen Bank-financedcontracts.

85. The Bank loan would be disbursed against: (a) 100Z of the foreignexpenditures of directly imported equipment and materials; (b) 100% of localexpenditures ex-factory of locally manufactured items; (c) 75% of the cost ofother items procured locally; and (d) 100% of total expenditures of consultingservices and training. For expenditures relating to training and contractsfor goods and services each valued less than $200,000 equivalent,reimbursements would be made on the basis of statements of expenditures.Documentation supporting such expenditures would not be submitted to the Bank

- 24 -

but would be retained in the ZPEPB project office in Ningpo and made availablefor review by the Bank's supervision missions. To facilitate disbursementsunder this project, a Special Account with an authorized allocation of$8 million would be established. Applications for replenishment will besubmitted quarterly or when the amounts withdrawn are equal to 50% of theinitial deposit, whichever comes sooner.

Accounting and Auditing

86. ZPErB maintains its accounts on an accrual basis using a doubleentry system and follows accounting procedures laid down by the Ministry ofFinance (MOF). ZPEPB's operating departments prepare accounting informationmonthly; the headquarters compiles consolidated accounts monthly, quarterlyand annually. ZPEPB has a relatively large accounting staff who are welltrained in maintaining ledgers and compiling accounts. The accounts are usedessentially to document historical financial information. As ZPEPB modernizesits financial management practices, it will need to learn to analyze financialand cost accounts for decisionmaking. The Bank has furnished a financialforecasting model to ZPEPB to enable it to study the impact of expansion plansand price variations on its future financial positions. Assurances have beenobtained that, by December 31 of each year, ZPEPB will furnish to the Bank afinancial plan containing forecast income statements, sources and uses offunds, and balance sheets for the next five years rolled forward each year.An understanding was reached that ZPEPB will furnish to the Bank financialprojections for an additional three years subsequent to the above-mentionedfive-year period.

87. The Zhejiang Provincial Audit Bureau (ZPAB) was established inDecember 1983. Under the proposed project, ZPEPB's annual accounts will beaudited by ZPAB under the overall supervision of the State Audit Adminis-tration (SAA). This arrangement is satisfactory. Assurances have beenobtained that ZPEPB will furnish annual financial statements, certified by anacceptable auditor, to the Bank within six months after the end of eachfinancial year. Assurances have also been obtained that project accounts forthe ECEPA-implemented components would be similarly audited and provided tothe Bank.

Financial Position

88. During the five-year period from 1980 through 1984, ZPEPB's salesincreased by about 55Z while revenues increased by about 68%. The operatingratio has remained reasonably constant at about 82%. Duriog the period, ZPEPBhas realized an average rate of return of about 14% based on historicallyvalued net fixed assets in operation. ZPEPB's debt service coverage ratio hasremained satisfactory.

89. During the period 1985-1992, ZPEPB is projected to maintain a highgrowth rate. Energy sales are expected to increase by about 155Z over 1984levels, representing a compound annual growth rate of about 11%. Net fixedassets in operation are expected to increase by about 519% over currentlevels, representing a compound annual rate of about 23%. If ZPEPB is tomaintain its financial viability in the face of this growth coupled with theexpected increases in coal prices to reach long-run marginal cost by 1990, itwill need to increase its average tariff from the current level of 7.4 fen/kWh

- 25 -

to 11.1 fen/kWh in 1991, an increase of about 5OZ. Assurances have beenobtained that ZPEPB will take measures, including but not limited toincreasing its tariffs, to ensure that operating revenues are sufficient tomeet the aggregate of its total operating expenses and the amount by which itsfinancial obligations (interest to be charged to operations, debt service,taxes, allocations to special funds, and other cash outflows) exceeddepreciation and other non-cash operating expenses. Compliance with thisagreement during the project period would imply that ZPEPB is realizingsatisfactory levels of financial performance, including: (a) average rates ofreturn of 8.1Z on historically valued net fixed assets in operation; and (b) aself-financing ratio (defined as the sum of cash available for investment andadjustment tax as a percentage of average capital expenditure) averaging about8% annually.

90. The Government's recent policy of using loans rather than grants tofinance capital expenditure is expected to have a dramatic impact on ZPEPBduring the projection period. From a capital structure which is virtuallyfree of debt in 1984, ZPEPB is projected to move to a debt/equity ratio of78/22 in 1992. Debt service is expected to increase by about 1,450X over 1984levels. Debt service coverage is projected to drop from about 4 in 1984 toabout 1.2 in 1992, virtually exhausting all acceptable safety margins builtinto operating revenues. Incurrence of debt at such a rate must be managedcarefully. Assurances have been obtained that ZPEPB may incur additional debtonly if a reasonable forecast of its revenues and expenditures indicates thatinternal cash generation would at least exceed the projected debt service.

Benefits and Risks

91. East China is one of the most important industrial areas in China,accounting for about 25% of total national production. A shortage of electri-city has been one of the major constraints to economic development. The netloss of industrial production (after deducting inputs) is estimated at aboutY 1 for each kWh of electricity not served.

92. In ZPEPB's service area, energy sales have been growing at anaverage annual rate of about 12.8% from 1962 to 1984. Growth rates in peakdemand and energy generation over the past 15 years from 1970-84 averaged at8.7% p.a. and 11.9% p.a., respectively. Of the 10,539 GWh total energyconsumption (including self-generation by captive plants) in 1984, 65% wasconsumed by industrial users, 28% by agricultural users, and 7% by transporta-tion, residential and commercial users. Based on a reasonable load projec-tion, the peak demand and energy generation for ECEPA would increase from9,400 MW and 68,000 GWh in 1984 to 18,500 MW and 124,000 GWh in 1992, whichrepresents average annual growth rates of 9.2% and 8.1%, respectively. Peakdemand and energy generation for ZPEPB would increase from 1,560 MW and 11,100GWh to 3,755 MW and 25,000 GWh, respectively, growing at average annual ratesof 11.6% and 10.7%.

93. ECEPA's optimized power development study (1986-1995) carried out bythe Water Resources and Electric Power Economic Research Institute (WREPERI)with technical assistance from the International Atomic Energy Agency (IAEA)indicates that its generation program depends largely on the development ofcoal-fired plants located at mine-mouth or near ports or load centers. Theproposed Beilungang thermal power plant with four units of 600 MW each to be

- 26 -

commissioned from 1990 to 1993 forms part of the system's least-cost expansionprogram. A study made by ECEPA also demonstrates that the thermal power plantis more economical than the alternative of bulk power transmission from amine-mouth thermal power station in Shanxi province.

94. The economic rate of return of the project would be about 8.5ZCapital and operating costs were shadow-priced. Benefits were calculatedusing the projected tariffs by 1991, adjusted to the end-1985 price level ofabout 8.6 fen/kWh. This is a very conservative estimate. As Beilungang is abase-load plant and forms a part of the least-cost development program, itmeans that the tariff level based on financial requirements is low comparedwith the long-term incremental cost of electricity of the East China powersystem which is estimated at about 11.3 fen/kWh. This will be addressed inthe tariff study to be included under the proposed project.

95. There are no significant risks associated with the project. Coalsupply and transportation have been assured by the Government. Procurementwill be carried out in nine well-grouped packages. A consulting engineer willbe used to assist in engineering and design, expediting and coordinating,construction management, testing and commissioning. Equipment installationwill be carried out under the supervision of experienced engineers dispatchedby the respective manufacturers.

EnvironmentaL Considerations

96. The design of the Beilungang steam power plant takes into accountthe environmental impact of the operation of the plant. In particular, elec-trostatic precipitators with a particulate removal efficiency of 98% or betterare provided to prevent ash and dust particles from polluting the environ-ment. A stack height of 240 meters has been selected to ensure that theground level concentration of sulphur dioxide and nitrogen oxides will notexceed the limits laid down by the Chinese National Environmental ProtectionStandards which are very close to Bank guidelines. The transmission facili-ties will be designed and carried out in accordance with current technologicalpractices and will cause minimum disturbance to the environment. No safetyhazards are foreseen.

PART V - RECOMMENDATION

97. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank and recommend that the Executive Directors approvethe proposed loan.

A. W. ClausenPresident

May 6, 1986Washington, D.C.

-27- ANNEX IPage 1 of 7

CHINA. PEOPLf S REP. OF - SOCIAL INDtCATORS DATA SHELTCHINA. POPLE'S REP. OF RIEFERNCE GROUPS (UEIGHTEI AVERAGES) is

MOST tO0ST RECENIT ESTtMATE) lb

196db lqCL/bRECENT /bLOS INCOME MIDDLE IN-comEzer

19

6D 19

6ESTIMJTC

1ASIA A PACIFIC ASIA 4 PACIFIC

ARIA (THOSANDa sq. a)TOTAL 95bl.0 956l.0 95b1.0AGRCItLTUItAL 3257.6 3882.0 3865.9

G- PBS CwAI (m6) .. .. 300.0 2178.3 1011.1

1XSCW COPURNWT&Ilr Pim CTIT&(KILOGRAMS OF OIL EQUIVALENT) 202.0 259.0 441.9 285.7 566.8

Pa11.ATla Am VITAL STATISTICSPOPULATION,MID-YEAR (THOUSANDS) oSIDOO.0 815160.0 101910z.n

Ut&BM POPULATION (C ur TOTAL) 19.6 Jc .. 21.0 22.3 35.9

OPULATION PROJECTIONSPOPULATION IN YEAR 2000 (CILL) 1242.3STATIONARY POPULATION (HILL) 1571.0POPULATION WIOENTUT 1.6

POPULATION DENSITYFER SQ. Km. 66.1 15.3 106.2 173.6 396.9PER SQ. KM. AGRI. LAND 199.6 210.0 260.8 353.3 1591.2

POPULATIONl AGE STRUOCURE (t)0-1; YRS 38.9 37.6 32.0 36.3 38.2

15-64 YRS 56.2 57.2 63.1 59.4 57.765 AND ABOVE 4.7 5.0 5.0 *.3 3.5

POPULATION CRONTH RATE ( )TOTAL 1.1 2.2 1.7 2.0 2.3URBAN .. .. .. 4.I 4.1

CRUDE BIIRTH RATE IPER THOUS) 39.2 /d 35.7 18.6 27.5 30.3CRUOE DEATH RATE (PER THOUS) 23.5 /d 8.8 7.1 10.2 9.4CROSS REPROOICTXON RATE 2.8 Id 2.3 1.0 1.7 1.9

FAMILY PLANNINGACCEPTORS. A.NNUAL (TMHS) ..USERS (2 OF MARRItED WOMEN) .. .. 71.0 5O.4 56.S

FOOD an UFRITICOINDEX OF FOO PROD. PER CAPITA(19609-71-100) .. 100.0 123.0 1I3.6 124.4

PER CAPITA SUPPLY OFCALORIES (t OF REqUIRLETS) 94.6 d 10.6 119.8 1'6.3 115.7PROTEINS (CRAMS PER DAY) 53.0 Id 5R.2 69.7 61.1 60.3OF HLICH ANIHAL AND PULSE IZ.5 7W 13.3 15.9 1:.' 14.1

CHILD (ACES 1-4) DEATH RATE 13.5 S.S 2.0 7.3 7.2

RF.LTHLIFE FXPECT. AT BIRrH (YEARS) .1.0 le 60.9 b7.1 60.5 oO.6INFA.NT MUKT. RATE tPER TIOWS) 165.0 !d b9.0 38.0 6q. 64.8

ACCESS TO SAFT WATER *tPOP)TOTAL .. .. 20.9 . /)"aseS ..4 .. 8S.07.2 57.7)RURAL . .. _o.n 1-t 17.1

ACCESS T1 EXCRETA DISPOSAL(: OF POPULATION)

TOTAL .. .. .. '.8 50.1URBAN .. .. .. 28.8 5:.9RURAL .. .. .. 5.5 4-.'

POPULATION PER PHYSICIAN q9&n.o /f 3690.0 If 1740.0 !f 3118.0 7751.7POP. PER NURSING PERSON 3830.0 2760.0 1730.0 -690.7 24D24.8POP. PER HOSPITAL BED

TOTAL 1040.0 760.0 440.0 1039.2 1112.1URBAN 210.0 .. 160.0 299.1 651.4RURAL 10140.0 .. 1020.0 6028.2 2596.9

ADMISSIONS PER HOSPITAL BED .. .. .. 52.3

AVERAGE SIZE OF HOUSEHOLDTOTAL .. .. 5.1URIAN .. ... 1RURAL .. ..

AVERAGE NO. OF PERSONSIR.NI0TOTAL .. ..URAN" .. ..

RURAL .. ..

PERCENTAGE OF DWELLI rS .ITH ELFCT.TOTAL .. ..URBAN .. ..RURAL .. ..

-28- ANNEX IPage 2 of 7

nst 197R 1! or wR rice cuiO Nvss) is

, , UC ~~~~~~~LOW IllaNIE l/aDDLC r1icom1,160 197oct- smeunhiai- ASIA 6 PACIFIC ASIA A PAcinc

- UADJUIID IEEOLLNENRAI 3*1

namvas hOTAL 109.0 110.0 110.0 92.6 100.7NIU .. *- 123.0 105.3 104.4FLMS * . 97.0 79.3 97.2

O3EIIDAAVu TOTAL 21.0 23.0 35.0 31.3 47.1HALE .. .. 46.0 40. 50.6FMLU . *. 25.0 21.9 44.8

VOCATIONAL CE oF 3o T) .. .. 2.2 3.2 16.4

EInUS .. 33.0 25.0 38.0 30.4RCOUIDAN .. 22.0 16.0 17.4 22.2

PASSEOEU CfS/TUAW P .. .. 0.2 1h 0.9 10.1unxo uzavmsfho P .. 14.7 210.1 129J 172.9nV zmzvguincauu Mr 0.6 35.3 19.8 58.5NVpWEI ("DIY cEnA

DWiut ) CIRCunoLAP TOAD POPULATION .. .. 33.4 25.7 65.3CVNEMA SAAL ATT C/CA .. .. .. 6.0 3.4

TOTAL LABOR FORCE (CT00) 321646.0 380555.0 470692.0FZKALE (PERCENT) 38.3 38.0 37.3 33.2 33.6ARIkCUL:TU (PERCENT) .. .. 63.9 69.6 52.2INDUSTRY (1U3CD) .. .. 18.7 15.3 17.9

PATCIPATIOM (PERCENT)TOTAL 46.6 45.0 U.1 41.9 33.9MALE 55.9 54.3 35.4 3.6 30.813015 37.0 35.0 35.1 29.1 26.3

ECOOMC D EOmOCT RATio 0.9 1.0 0.6 1.0 1.1

- - CPERCEN 01 PRVATE INCORECEIVED Sif1G15 sI o s s .. .. 12.5 SrIS 200S oF WSaO .. .. 39.3 .. 48.0LOUI 20 oF 3SHOLDS .. .. 6.3 .. 6.4LOS 40 Ous L .. .. 18.4 .. 15.5

UToum AMan iOWan INCGLEV CUSS PER CATA)

VRAM .. .. .. 133.9WEAL .. .. .. 111.6 151.9

ESTXIED ELATIVI FOVEY INCU1LEVL CUSS PE CAITA)

A N. . . . 177.9RUEAL . . . 61.7 164.7

ESTIVATED POP. EELOV AS301023POVEA?! lNCOII LgVEL (I)

URN"S .. . .. 43.3 23.5WIEL .. .. .. 51.7 37.8

NOT AVALASENOT APPLICAEL

N O S 9 s

Ia The grouP avraig for each Indicator are popolatioe-wigbted arithmtic geae. Covaraga of countrime_m tbs iudictces 4depends on availabillty of data and Ia not uniform.

lb Unlear otbhzvLae noted. 'Data for 1960" refr to ay yer betas 1939 and 1961; "Data for 1970" bet1969 and 1971; and data for "Maet Ret Etlmtt beteen 1931 and 1933.

/c 1964; /d 195545 arsg; /I 1955-64 averag; if Senlor doctor of western medicine; ft Distributionof peopfl rnleod by holueboli per capita income1979 data, fl 1930.

JUNE, 1935

- 29 -

Annex IPage 3 of 7

DEPMNINiS OF SOCAL 1NE1CATOIS heNola: Akbaugh the 4ds an dmwe f1rao ru e pwmrayjudpd te mat utoetattevg and raible. it rbold also aw _ thU tky ny not bL mir llcoompmeble bus. of thelak of tandudaad dddilo. d aegis .d by duffais eounw. in colatug i. duta. The alsas. nottherl. useful tod.cube ord.n of aitude ieitte atr nd da . urtlai major dau btwm satna.Te mreem group are (1 I the am county groW of ihe aub)t cot" s. d) ( couny gap wth somewhtiger average ii ume Ibn theL cilityvoup of thesebjeat etry (s_p for iHigh lacomeOd Eaponetegroup whemMlMidl. enmr Notnh Atrts sa Middle Est" it chosn lhuse of firornsefsocaa.cultural albitus). I. theub. n r goup dom the a*erag popultin wagd anie mam for _gh ndictor snd hownl only what majurityofdi crounua ina poup a dams for thal imidao. Sia the coverage orcoutatnas meog t. Indltordupnda - the avaiability ofdata and is nol unilona.suon must be eserd is ruti awrap ofoem indicator to snotr. Ta *vea asa oe only usiul in conpring the value orone indicr atea i ume amongthe eatry and ru vgoup.

AREA (thousnd sq.km.) C.alriB Rae {o(petM asmd - Number orlive binhs in the yearToraI-Toal surface area cmpnsing Land area and inland wters; per lhouaad of mid-year population 196U. 1970. and 1983 data.1960. 1970and 1993 data. CraeDeuRha (perthe d)- Numberofdeathsintheyear

4gri eub l-Estimate of agricultural are used temporarily or per thougand of mid-year population; 1960. 1970. and 1983 datapermanently for crops, pasures, market and kitchen grdens or to Gros Repeedwct Rae-Average number ofdaughters a womanlie fallow. 1960. 1970 and 1912 data, will bear in her normal reproductive period if she experiences

present ag-specific fertility rates; usually five-year averages endingGNP PER CAPITA (USS)-ONP per capita estimnates at curremn in 1960. 1970. and 1913.market prices. calculsted by same conversion method as rd/d Femie, Pi4sodv-Accepsers. Anad frthiassndsj %nnual nusisBank Atlas i 198 1 -113 basis). 1983 data. berof acceptors of birth-control devier under suspm'.. l tfnattonal

ENERGY CONSUMPTION PER CAPITA-Annual apparent family planning program.consumption of commercial primary energy Icoal and lignite. F y Pmin-fse m(perent ef mwrkW ws) The pen enpetroleum. natural gas and hydro- nuclear and geotherm cldec- tage of married womenorchild-bearing age whohSac pi Acticinp nir

tricatyl in kilograms of oil equivalent per capita; 1960. 1970. and whose husbands are practing any form ofsntrra cptior. Wonier1982 data. of child-bearing age arem nerlly women aged 1549. alihough for

some countries contraceptive usage as mejcured IoI sthle A.ePOPULATION AND VITAL STATISTICS groups.

T.alhPpuisbm. MU-rew (thf -aslj-As or July ; 1960. 1970. FOOD AND NUTRITIONand 19S3 data.

Uplisi P_ _aborbo (percw of raraiji- Ratio of urban to toal lnkz.fFo.Prducdon 5 rapita (p969,.?, 1 l Indc' if pcipourbain tdbiffc(rertceiintsofutotala)- my eaonpi- capita annual production of' all food comntimditue Productionpopulation: different definitions of urban areas may affect compar-lexcludes animal feed and speed fur atitulture. loud cmmonditiesability of data amnong countris; 1960. 1970. and 1913 data. include primary commodities teg sugarcane instead tif suparApuaion Ptijecno which are edible and contain nutrientis ieg .oltec and lea arcPopudation in year 200-The projection of population for 20tl excluded)l they comprise cals root crops. pulse. oil sceds.made for each economy separately. Starting with information on vegetables fruits, nuts. sugprcane and supr beets. liestock, andtotal population by ae and sex fertility rates, mortality raes, and livestock products. Aggregate production of each country is hasedinternational migration in the bae year 1980. these parmmeters on national aveage producer prie weighis; 1461-65. l1tt1. andwere projected at five-year intervals on the bais of generalized 1932 data.assumptions until the population becme staionary. Per CprS Sappi of Ca iris fpercenrofeqdernsr Comput-S:aoerta y popdaioli-l a one in wbich age- and sx-pecific mor- ed from calorie equivalent of net foo supplies d vailable in coun trtaliiy rates have not changed over a long period, while age-pecific per capita per day. Available supplies coi prais domestic produr-fertility rates have simuitaneously remained ai repacement level tion. imports less exports. and changes in stock. Net supplies(net reproduction rate- I). In sucl a populatn. the birth rate is exclude animal feed seeds for use in agriculture, quantities used inconstant and equal to the death rate, the age structure is also food proceing. and losses in distribution. Requirements wereconstant, and the growth rate is zero The stationary population estimated by FAO based on physiological needs fair norrnal actist isize was estimated on the basis of the projected characteristics of and health considering environmental temperature, bxoy weights.the population in the year 2000. and the rate of decline of fertihty age and sex distribution of population, and allowtng It1 perceni forrate to replacement levde waste at household level: 1961. 19701 and IY12 dataPopulatian Muanrnon-ls the tendency for population growlh to her Cpita Slpppy ofNhtels tgrams per dayJ l'roteiaa snSent .Itcontinue beyond the time that replacement-level fertility has been per cailta nct suppl) of food per day Nel supply. s d i. ditrinclachteved: that is. even after the riet reproduction rate has reached as above. Requirements lor all countries esltbli4hed hb t %l)%unity. The momentum ofa population in the year is mcasured as provide for mitimum allowancc of hU grants tf StiltS Pi.scn r-ea ratio of the ultimate stationrry population to the population in dav and 2U1 yrants of animal and pulse protoni. v-which ItS gfina-the year :. given the assumption that fertility remains at replace- should be antmal protein. Thes standards are 1ov cr tlt.n those olnent level from year t onward. 1915 data. 75 grams of total protein and 23 grams (f animal proittn as an_dpve-sw Deinisy average for the world. proposed b) FAO in the Third W,m IJ I !

Per sq.km.-Mid-year population per square kilometer (100 hec- Supply: 191. 1970 and 1982 data.tares) of total area 1960. 1970. and 1913 data. hr Capita hotew Spply Fpn Anira an PWsir-s- Prt on %upplyPer sqAmn agriw-lduravlnd-.Computed as above for agricultural offood derived from animals and pulve in grams perda,s. lHl oS.land only. 1960. 1970. and 1912 data. 1970 and 1977 data.

Populatin Age Sar (percent)-- Children (0-14 yearsl. work. ChWraU(esJI4DnWthRattPerfarsmndi Ntatnlwr.dJ.tin.ing age l(15-4 years) nd retired (65 years and over) as percentage children aged 1-4 vears per thnusnd childrelk in the arrme agcof mid-year population: 1960. 1970. nd 1983 data. group in a pgen vear. For most dcLeloptng eotutntrc. dti.t Jen' ci!

Pepatia. Grhw Rae (pfees-4total-Annual growth rates of from lire tabe: 190. 1970 and 193 dattotal mid-year population for 1950-60. 1960-70. and 1970-83. HEAULH

P1option GrCth Raer (percent)-rn- Annual growth rates Lt Expetay or Birt (yews) Number of vears a newbornof urban population ror 1950-60. 1960-70. and 1970-83 data. infant would live if presailing patterns of mosrtaii iAr alt peouvir

- 30 - Annex IPage 4 of 7

at the time or or iu birth were to stay the eme throughout its lire.; Pupdreacher Ratio -prhnaryr sad srra_thry-Total studentm en-1960. 1970 and 1913 data, rolled in primary and secondary levels divided by numbers ofxib Munwhy Rat (per atht sandj-Number of infants who die teachers in the corrsponding levels.

before reaching ows year ofage per thousand live binhs in a givenyear; 1960, 1970 amd 1933 datn. CONSUMPTIONAecn o So Nbsr (recs tof j IUhof4dhUl. Mr, ad dA_a_e Cur (per thousand popnlourfj- -Pssengel "tn coimrmwl-Number of people (total, urban, and rurld) with reasonable prise motor cars sting kls than eight persons; excludeb Anibul-acoa to use water supply (includes treated sturet watetr or ances, hearms and military vehicles.untrented but uncontaminated water such - that from protected Redo Rewers (per thousand populatioi-All types of receiversboeoes spnnpand aunitary wells) as percentags of their rfepe- ror radio broadcast to general public per thousand of population;bve populations. In an urban area a public fountain or sandpost excludes un-licensd receivers in countries and in years whenblcted not more than 200 meter from a house may be considered mgiserunion ed rece. t years nayas being within reasonable acess of that house. In rural areas registatin o rioet ast intels mayreasonable access would imply that the housewife or members of the not be comlurable since most countres sholished icensinghouselbold do not have to spends disproportionate part of the day TVRecebet (per hosadpepularn) - TV receiver for broadcastin fetching the family's water needs. to general public per thousand population; exdudes unlicensed TV

receDver in countfies and in years when regsiration of IV sets wasAccess te Excreta Thaposa (peren of popularln.-batal. wbm in effect.and rral-Number or people (total. urban, and rural) served byexereta disposal as percentages of their respective populations. qper CU'CUStlOi (per them-sdpop- inr Slihowstheavel-Excreta disposal may include the collection and disposal. with or age circulation of -daily general interest newspaper.' dehntl ats awithout treatment, of human excreta and waste-water by water- penodical publication devoted primarily to recording pencral newsborne systems or the use of nt privies and similar installations It as considered to be -daily" if it appears at least four time a weekPopulaoin per Ptyskiim--Population divided bv number of prac- CiNAU Anal Antr.de per Cata per Yew- Blind on thetising physicians qualified from a medical school at university level number of tickets sold during the year. including admissions toPoupution per Nursing Person- Ppulation divided by number of drive-in cinemas and mobile unitspracticing male and female graduate nurses. assistant nures.practical nurs"s and nursing auxilianes. LABOR FORCEPoplatin per HospiRal Bed--eal, rho, and rwa-Population Total LAbor Force (thousands)-Economically active persons, in-(totaL urban, and rural; divided by their respective number of cluding armed forces and unemployed but excluding housewives.hospital beds available in public and private. general and specialized students. etc. covering population nr all ages. Definitian% inhospitals and rehabilation centers. Hospitals are establishments vanous countries are not comparable. 1960. 1970 ard 19b3 data.permanently staffed by at least one physiian. Establishments prov- hiedu fpereerv-Fermale labor force as percentage of total laboriding pnncipally custodial care are not included Rural hospitals, force.however, include health and medical centers not permanently staffed Agrculrar (pereer---Laohr farce in larmminy. iore ti% h.mntir.by a physician (but by a medial assistant, nurse, midwife. etc.; and fishing as percentage of total labor force. 1960, 19Y7 and l1tUwhich offer in-patient accommodation and provide a limited range da ta.or medical facilities. lndestry (perret)--Labor force in miniiag consirtiimi.. ,a.Ad..asien per Hospisal Brd-Total number of admissions to or facturing and electricty water and gar as percentagc of mt,tl Ldabrdischarges from hospitals divided by ihe number of beds. force: 19Y. 1970 and 190 data.

Partici.-aion Rare (percent -4oral. _r., adjfianiaf-FrticipatronHOUSING or activity rates are computed as total. nale. and fernale Lhair (nra'Average Sz of Houseold (peros per household -- ral. wrbho as percentages of total mnale and fen sia populattoti o' dal apsadrval--A household consists ofa group ofindividuals whoshare respectively: 1960, 1970. and 1983 data. These are based on ILO'sliving quarters and their man nmeals. A boarder or lodger may or participation rates reflecting age-sex structure of the population. andmay not be included in the household for statistical purposes long time trend. A fev estimates are from national %ounfrAverawe Namber of Persons per Room-neal, ara,. and rual Econanuc Dcpendeny Rat -Rtuo ol population under andAverage number of persons per room in all urban, and rural 65 and over, to the working age population tshose aged Is-rAioccupied conventional dwellings. respectivelv. Dwellings excludenon-permanent structures and unoccupied pans. INCOME DISTRISBJ1TIONPercetage of Dwllings with Elektricitty-4toal, rho, ad rwral Percntae of T-os Dspo-sablr lncm (bowh in tush ad Lint)Conventional dwellings with eletricity in living quartersas percen- Accruing to percentile groups ofhouseholds ranked by total housetage of total urban, and rural dwellings respectively, hold income

EDtUCATION POVERTY TARGET GROU'PS

Adussed Envlhenr Ratios The following estimates arc vern Approxinate mcasure' It pa".etiSPhnatn srhool - rtoal, male and female -Cross total, male and levels, and should he interpreted with considerahle caultionfemale enrollment of all ages at the pnmary level as percentagc. or Erimaed Absolte PDverty Ineo Level t 1'.S per cajitot-- urbanrespective pnmary school-age populations. While many countries ad rnual - Absolute poveny income level is that income kleelconsider primary school age to be 6-11 years. others do not. The below which a minimal nuintionall) adequate diet plus essentialdifferences in country praciwes in the ages and duration of school non-food requirements is not affordAbleare reflcted in the ratios given For some countries with universal Esrtimated Relative Povrr lncoew Level (ISS per crera--arbaneducation, gross enrollment rmay exceed 1W percent simce some ad nrua -Rural relative poverty inrw,me level i% sane-third 1lpupil' arc below or above the countrys standard primary-school average per capita personal income of the countr) UIrban level isage. derived rrom the rural lte%l with adjustment fior higher ." 11S&-ronsari school ton.tal, male and frmalr -Computed as above. living in urban areassecondarv education requires at least four vears of approved pn- Etimated Poputio Below Assolae PovrtWr Incom Leret (per-mary instruction; provides gneral. vocational, or teacher training cenr-urhan and rara- Pftrcent of popiulation turhan and -uralinstructions for pupils usually of 12 to 17 years of age; correspond- who are "absolute poorence counws are generally excludcd£uamnal Enrolmentrpler.enit 01of weoandkra--Vocatis.n;al Istitlu- Comparative Ara1%.ss ardn1d ta Dii sontions include technical industrial, or other programs which operate Ectinomic Analys i. and Projections Departmentindepedently or as departments of secondary institutions June I9W

- 31 - Annex IPage 5 of 7

Populatton 1.Ot9 millIon (mid-1913)GN7 per capital S300 (1983)

CHI?IA - ECONOHtC IzDtCADORS

Aount - 195' Annual growth racee (t)(million US5 at Actual Pro1eceed

Indceator current pricnm)/b iJS8 1986 1962 1983 1984"a 1985 1966 1967 1966 1969 L990

NATIONAL ACCOUNTS /aGroea dom_stLc producr 281.260 6.6 4.9 7.8 9.6 14.0 10.4 6.8 6.6 6.6 6.6 6.8

Agriculture 100.430 -1.7 6.4 11.2 9.0 13.9 6.0 4.9 4.9 4.9 4.9 4.9Induecry 125.010 12.3 2.3 7.3 11.4 16.6 14.0 7.7 7.7 7.7 7.7 7.7Servtces 55,820 8.2 6.9 3.3 6.5 7.7 10.0 7.9 7.9 7.9 7.9 7.9

Coneuuption 198.190 9.1 5.2 5.9 9.0 12.5 12.5 8.9 7.4 7.4 7.4 7.1Crown tovestaeut 83,100 1.3 -1.8 10.9 15.2 20.7 11.0 2.3 4.8 4.6 5.1 5.7Exporte of GNTS /a 26.720 17.6 16.7 0.6 9.5 13.0 ;.0 8.9 8.8 8.8 8.8 8.6imports of cNFS 7i 26,750 16.1 -6.7 -5.7 28.1 25.9 43.1 0.0 5.8 5.9 6.0 5.2

Gross national savings 65.870 -0.2 3.6 17.0 12.0 17.0 5.0 2.4 5.1 5.1 5.6 6.2

PRICESCDP deflator (1980 - 100) 100.0 101.6 101.7 102.9 107.6 113.1 118.7 124.7 131.0 137.5 144.4Exchange rcte (Yuan/USS) 1.50 1.70 1.89 1.96 2.32 2.84 2.84 2.84 2.84 2.84 2.14

Share of GOP ac merket prtces t) Averago annual increase (:)(at current prces) (at constant 1961 prtcee)

1960 1970 1975 1960 1995 1990 1960-70 1970-75 1975-60 1980-44 1984-89 199-9

Gross dousuttc product /a 100.0 100.0 lOO.0 100.0 100.0 100.0 6.1 5.2 6.6 9.0 7.3 4.6Agriculture 23.0 35.0 32.8 32.0 34.2 31.3 6.7 3.4 3.3 10.1 5.0 4.8Industry 48.0 41.0 45.8 48.0 47.9 49.9 7.8 7.5 9.9 9.4 8.6 7.4Services 29.0 24.0 21.4 20.0 17.9 18.6 3.4 4.5 5.4 6.6 8.2 7.5

Consumption 62.4 70.8 69.1 71.3 66.7 69.3 6.1 4.7 S.4 8.1 8.4 6.8Gross investment 37.8 29.2 31.1 10.0 34.4 30.9 9.5 6.9 9.7 11.1 5.1 6.1Exports of GNFS 4.8 2.8 5.3 .1 7.7 8.5 -1.5 10.8 5.7 12.3 8.0 7.7tIports of GNFS 5.0 2.7 5.5 6.4 8.8 8.6 1.2 13.9 13.0 12.2 8.4 7.4

Gross national savings 37.7 29.2 30.9 29.9 33.6 30.7 0.1 6.7 7.2 14.0 4.8 4.2

A,1 : -if GDPL957 1970 ;jBO 1983 1984

P11BLIC FINfANCECurrent revenues 28.7 29.6 30.S 27.8 26.7Current expenditures 15.1 15.7 21.1 21.6 20.1Surplus (+) or deficiz --) L3.6 .43.9 7.5 -6.2 6.6Capital expenditcure 13.7 13.3 11.1 7.8 8.2Foreign financing 0.7 n.a. 0.5 n.2 0.3

1960-70 1970-75 1975-R0 1980-94 1984-49 :989-94

OTHER INOICATORSGNP growth race ([) 6.1 S.1 -.4 9.2 7.2 ,rCNP per capita growth rate (t) 3.5 2.9 5.2 7.9 S.1 5.5Energy conslmptLon growth race (2) -0.3 9.2 5.8 '.1 5.3 4.8

ICOt 5.3 4.7 5.1 1.8 4.0 4.6'arginal savings rate 0.4 0.4 0.3 0.3 0.2 0.3Import elsticeity 0.2 2.7 2.0 1.4 1.1 1.2

/a Daca for 1981 and 1982 are from differenc sources; data for 1982 exclude re-exports.

East AsLa and Pacific Regional OfficeFebruary 7. 1985

- 32- ANNEX I

Population 1.019 million (uld-1983) Page 6 of 7Gil per capitas 5300 (1983)

CH NA - EXTERNAL TRADE

Amount - 1984 Annual grow,h raten (2) (at conitant prices)(million USS at Actual Projecdcurrent prices) 1960 1981 19Z2 1963 1984 198S 1990

EXTEWAL TEAM toHerchandIse e*ports 25,020 14.8 17.3 5.5 10.1 10.4 2.8 8.7

Ptinrr 11.4L0 1.3 -1.4 3.9 14.6 9.6 3.3 6.8Kanufactures 13,610 32.2 36.2 6.6 7.0 11.1 2.4 10.4

hnrchsndise Importe 26,740 6.8 7.2 0.2 29.7 22.3 47.1 6.2Food 2,330 9.1 66.3 42.9 -30.9 -24.9 14.4 7.1fetrolem 130 52.6 -65.5 130.0 -43.5 30.8 0.0 35.5!achinsry and equipment 8.420 16.4 19.0 -41.7 34.7 82.3 58.2 5.1Others 15,860 0.9 -13.5 7.1 71.7 16.8 19.9 6.3

PRlCKSExport price index (1960-100) 100.0 102.7 98.7 88.8 90.5 88.0 126.0Isport prLce indez (1980-100) L00.0 104.5 89.2 76.7 78.4 77.3 112.0Terms of erade index (L980-100) 100.0 98.3 11Q.7 115.8 115.4 113.8 112.5

Composition of merchandise crads (2) Average annual incrcne (a )(at current pricee) Cat coneeac ntrices)

1978 1981 1984 1990 1980-84 1984-89 1989-94

Export. 100.0 100.0 100.0 100.0 10.8 7.9 7.6Prim_ry 53.4 46.6 45.6 42.1 6.7 6.4 6.1Nanafactures 46.6 53.4 54.4 57.9 15.2 9.4 8.2

Imports 100.0 100.0 100.0 100.0 14.9 8.5 7.5Food 12.8 17.4 8.7 9.7 13.9 8.9 8.5fetroleum 0.5 0.4 0.5 0.9 13.0 17.2 16.1%achinery and equipment 18.9 29.2 31.5 33.3 23.6 12.0 6.8Others 67.9 53.0 59.3 56.1 20.5 6.7 7.5

Share of trade with Share of crade vith Share of trade withindustrial developing the USSR and

countries (2) countries (:) Eascern Europe (S)1977 1980 1983 1977 1980 1983 1977 1980 1983

DIRECrTION OF TRADEExports 36.4 44.7 42.1 46.8 48.7 53.2 16.8 6.6 4.7Imports 63.1 73.6 69.0 20.7 19.7 24.5 16.2 6.7 6.5

/a Based on customs statietics. Exports, f.o.b., Imports, c.i.f.

East Asia and P&cific Regional OfficeNovember 22, 1985

ANNEX I- 33 ~ Page 7 of 7

Population 1,019 million Cmid-1983)CGP per capita: 5300 (1953)

CNN - sALANC! or PFAweNS. zXTEXKAL CAPITAL AMD DEBT(Millions of USS at current prices)

Ac tual ro10ece dTndicacor 1978 1979 1980 1981 1982 1983 1984 L990

BAIAUCE OF PAYMCNSZxporcs of good. *nd nonfaccor services 10,370 14.983 20,32k 24,423 23.637 23,186 26,716 26,840 58,590Of which: H rchandite f.o.b. /a 9.607 13,658 15.492 22,027 21.125 20.707 23,905 23.900 52,130

Imports of good. and nonfactor services 11,668 17.759 24,058 23.446 18.900 20,711 26.748 38.290 63.150Of which: Mrchandios f.o.b. /a 10.745 16.212 22.049 21.047 16,876 18,717 23,690 35.150 56,950

Net factor income from abroad -8 -77 -117 -200 452 1,253 1,620 1.1t40 -850Net transfers 597 656 640 466 530 436 306 300 300Current account balance -709 -2.197 -3,Z11 1,241 5,719 4,164 1,892 -10,010 -5,140

Private direct lnvestmetn (not) - - 57 265 430 636 1,100 1.650 1,950OffEcial grant aid (nat) - - 21 156 -74 75 137 140 140MLT loans (net) 549 3.815 1.069 310 301 _927 -145 0 6,450Disburme nto 549 3.895 1.670 1.659 2.481 i.600 718 950 6.390Amortitation - 80 601 1.348 2.180 673 863 950 1,940

Other capital /b -628 -1,021 2.455 -47 -115 -1.672 -2,859 2.330 -Chaang La resrves

("-" indlcacing Increase) 788 -597 -391 -1,925 -6.291 -4.130 -95 5,890 -1,400

Internattonal re-erv.e 6.677 7.274 7.665 9,590 15.881 20#011 20.106 14.220 23.500Of wbich: Gold Ic 5,120 5.120 5.120 5,120 5,120 5.120 5.120 5.120 5.120

R oervee as onthu of imporco 6.2 4.5 3.5 4.8 10.1 11.7 9.1 4.5 4.2

EX5CRNAL CAPITAL ALID DEBT /dGross diabursement ..Official grants . . . ..Conc ssmonal lo I. .DACIDAOther

No-conces-aonal toansOfficial export creditsIURDOcher multilateralPrivace .. .. .. .. ..

External debtDebt oucstanding and disbursed 549 4.364 5,433 5,261 5.562 6.397 6,3.0Official . . . ..

Private .. .. .. .. .

Undisbursed debt

Debt serviceTotal service payments

laterest .. .. .. ..

Payr ents as s of exports 0.4 2.7 6.3 9.0 11.4 4.9 5.0

kverage Interest wate of new loans (:) - - - - - - -

Averge meturiry of new loans (years) - - - - - - -

/a Data for 1978-81 are not comparable with those of 1952-85 because of a difference in their sources. The latter excludere-exports.

/b Includes net use of IMF credit and net flow of short-term capital.7;' Valued at USS402/troy ounce.7i Exclude. short-term loans (one year or lees).

Easet Aia and Pacific Regional OfficeNovenber 22, 1985

- 34 - ANNEX IT

STATUS OF BANK CROUP OPERATIONs IN THE PFOPLE'S RE1PIJLIC OF CHINA

A. STATEMENT OF BANK LOANS AND IDA CREDITS(as of March 31, 19H6)

Loan or 11S5 millionCredit Amount (less cancellations)Number Year Borrower Purpose Rank IDA Undisbursed/

2fl21/1167 1981 People's Republic of Chtna University Development I 100 n 1o0 10.51261 1982 People's Republic of China North Chtna Plain Agriculture - 6n.0 15.22207 1982 People's Republic of China Three Porte 69.n - 21.91297 19R2 People's Republic of China Agric. Education A Research - 75.4 17.9

2226/1313 1982 People's Republic of China Industrial Credit 40.6 30.n 26.52231 1983 People's Republic of China Daqing Petroleu 162.4 - 67.82252 1983 People's Republic of China Zbongyuan-Wenlin Petroleum 100.8 - 66.2

2261/1347 1983 People's Republic of China Heilongiiang Land Reclamation 25.3 45.n 18.41411 19R3 People's Republic of China PolytechniecTV Univereity - 85.0 45.11412 1983 People's Republic of China Technical Cooperstlon - 10.0 4.71417 1984 People's Republic of China Rubber Development - 10n0n 54.R2382 1984 People's Republic of Chins Lubuge Hydroelectric 145S4 - 114.12194 1984 People's Republic of China Railway 22n.n - 117.n1462 1984 People's Republic of China Rural Credit - 5n0o 33.11472 1994 People's Republic of China Rural Health & Medical Educ. - 85.0 55.n2426 1984 People's Republic of China Karrnsy Petroleum 99.5 - 77.7

2434/1491 1984 People's Republic of China Second Industrial Credit ln5.n 7n0n 111.12444/1500 1984 People's Republic of China Second Agricultural Education 45.3 21.5 35.7

1516 1984 People's Republic of China Second Agricultural Research - 25.0 Z5.41551 1985 People's Republic of China Second University Development - 145.n 159.72693 1985 People's Republic of China Second Power 117.n - 111.12501 1985 People's Republic of China Chsnagcun (Lunn) Coal Mining 126.n - 123.41557 1985 People's Republic of China Ceeds - 40.n 43.01578 1985 People's Republic of China Rural Water Supply - 8n.0 90.2

2539/1594 1985 Ueople's Republic of China Niqhway 42.6 3n0. 65.R2540 1985 People's Republic of China Second Rativay 235.0 - 235.02541 1985 People's Republic of China Fertilizer Rehabilitation and 97.0 - 96.5

Energy Scving1605 1985 People's Pepublic of China Forestry Development - 47.1 49.1

2579/1606 1985 People's Republic of China Pishihang-Chaohu Area Development 17.0 75.0 98.52580 1985 People's Republic of China Welyuan Cas Field Technical 25.0 - 25.n

Assistar.ce1642/b 1986 People's Republic of Chins Second Rural Credit - 90.0 9n0n

2659/11%37 1986 People's Republic of China Third Industrial Credit 75.0 25.0 1on0.16647h 1986 People's Republic of China Second Technteal Cooperation - 2n.0 20.n16717b6 1986 People's Republic of China Provincial lniversities - 120.0 12n.0

Total 1,847.9 1.431.2

Total now held by Bank and IDA 1.R47.9 1,431.2

Total Undishursed 1,317.8 1 ,nl9. 2,357.6

D. STATEMENT OF IFC INVESTMENTS(as of March 31, 19R6)

Amount in US$ millionYear Obligor Tvpe of business Loan Equity Total

1985 Cuangzhou and Peugeot Automobile Co. Automobile 15.n 2.n 17.n

Total Gross Com-mtments 15.0 2.0 1ItS

Less cancellations, terminations.repayment and sales

Total Coiitments now held bv IFC 15.0 2.0 17.n

Total tlndisbursed 15.0 2.0 17.0

/a As credits are denominated in SERs (since IDA Replenishment VI), undisburted SDB credit balances are con-verted Lo dollars at the current exchange rate between the dollar and the SDR. In some cases, therefore,the undisbursed balance indicates a dollar amount greater than the original principsl credit amountexpressed in dollars.

lb Not yet effective.

Note: The status of the projects listed In Part A is described in a separate report on all Bank/r nA financialprojects in execution, which Is updated twice yearly aiT circulated to the Executive Directors onApril 30 and October 31.

- 35 -

ANNEX IIIPage 1 of 2

CHINA

BEILUNGANC THERMAL POWER PROJECT

Supplementary Project Data Sheet

Section 1: Timetable of Key Events

(a) Time taken by the country to prepare project: 5 years

(b) The project was prepared by: ZPEPB and ECEPDI

(c) Date of first presentation to the Bank: September 1984

(d) Date of first mission to consider the project: March 1985

(e) Appraisal mission: June 1985

(f) Completion of negotiations: April 1986

(g) Planned loan effectiveness: September 1986

Section II: Special Bank Implementation Actions

None.

Section III: Special Conditions

(a) ZPEPB and the Government would carry out a training in accordancewith a program acceptable to the Bank (para. 76);

(b) MWREP would carry out a tariff study in accordance with a workprogram acceptable to the Bank (para. 77);

(c) ZPEPB would institute and furnish to the Bank a five-year financingplan, rolled forward each year (para. 86);

(d) ZPEPB wouli submit its annual financial statements, certified by anacceptable auditor to the Bank within six months after the end ofeach financial year and that the project accounts for the ECEPA-implemented components would be similarly audited and provided tothe Bank (para. 87);

(e) ZPEPB would take measures, including but not limited to increasingits tariffs, to ensure that operating revenues are sufficient tomeet the aggregate of its total operating expenses and the amount bywhich its financial obligations (interest to be charged to opera-tions, debt service, taxes, allocations to special funds, and othercash outflows) exceed depreciation and other non-cash operatingexpenses (para. 89); and

- 36 - ANNEX II

Page 2 of 2

(f) ZPEPB would incur additional debt only if a reasonable forecast ofits revenues and ezpenditures indicates that internal cash gener-ation would at least exceed the projected debt service (para. 90).

_ _ , - , . -- , . . .~~~~~~~~~~~~~~~~~IBRD 191761|7 118- 119-_2 120 121 122- 123'

SN. H A N D O N G - CIA3

9s' r._./ t>_t ~~BEILUNGANG THERMAL POWER PROJECT

S.',;^4 }t¢- =:4 LlfZlltUngO|O <t ~~~~~EXISlINO CQVgv P C O01rXOPEC

¢ g^l1F SruHouNo I, fjooSw 4> _- 50xV Transmission Line'i ', o\@ ,;,),^ M>Pl ' e v ^ * S~~~~~A 5OOV Substolions

/UA/Ft * g ' ~~~~~ ~ ~ ~~XIAHAI l O* Th-rmal Power Plantsf70 UJ-'':.\ , Wo \v Hydro Power Plants 34

340*,,8 ......... _ ... ;\ Nuclear Power Plont

| L. _ . - Ou~~~~~~ ~~nocng I | / ,^t -<,^,f1,.:18!.N' ' ,;:' l.,.: 9' - ~~~~~~~~RiversI I 1,,; ' \ \ J -@- ~~~~~~~~~~~~~~~~ProvlncnSeund rln

|~~~~~~~~~~~~~~~~~~~~~~~~ 5;' 10oir 1 10

33-; ,|! ,;__-x8 8 S > J i A N G S U KIbEES3

M.2,os "'.IVr% Bengbu .rl<

), Wv'; st - ~ ''' SlV)t

i. ~ < wAS3>a wf*> t4Do t+ | > , : : c w

ti AN H U I e, . ot St __ 133 -*-V-Ot W)<- c 332- Ncnrg 32 /%sw *N - _

> ]/ / , 1 ., r . ^,wsov r~ ) . HANGHAI

<_>~~,~ ;-o ] _ t 0 'Suzhou ( vN SH OMW-e- r- <X t1; _v4Z -o .% H, .: I)UN 350 A/lWo3

An|Q ... o : CHEIVU R|-

_aD. f2 P^W 30 t } -1-ZH1A Z0

& \ - - / <-> , _ >~~~~~~~~UCHU1VJ1A NG f ntim Yefy 24)I_< ,-;Q_ Y-_X2i f2972 Mw/

S . {ddZ(66 5 MtW//

C - - ~~~~Z H E J I A N G-: -

J~~~~~~~~~~~~UAGAv0 I~:~ AZO N25 G WI I iv;.

l -HUNAWNSH .EI t

28' > Wenzhoug~~- ,- ~,

z < ~F U J I A N < x- ,117- .- llo' t~~~~119' 120- 121- 122- 123-

AUGUST 1985