Document of The World Bank FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD736 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$35 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR AN ECONOMIC TRANSFORMATION AND INSTITUTIONAL CAPACITY BUILDING PROJECT April 21, 2014 Poverty Reduction and Economic Management Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 1, 2014) Currency Unit = Chinese Yuan (CNY) US$1 = CNY 6.03 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ASEAN Association of Southeast Asian IPF Investment Project Financing Nations CAS Country Assistance Strategy M&E Monitoring and Evaluation CPC Communist Party of China MOF Ministry of Finance CNAO China National Audit Office NCB National Competitive Bidding CNY Chinese Yuan NDRC National Development and Reform Commission CQS Selection Based on the consultants ORAF Operational Risk Assessment Framework Qualifications CSRC China Securities Regulatory PAD Project Appraisal Document Commission DA Designated Account PDO Project Development Objective DRC Development Research Center PIA Project Implementation Agency ESMF Environmental and Social PMO Project Management Office Management Framework FM Financial Management POM Project Operations Manual FMS Financial Management Specialist QBS Quality Based Selection FMSB Financial Management Sector Board QCBS Quality and Cost Based Selection FYP Five-Year Plan SIA Subproject Implementation Agency GDP Gross Domestic Product SMO Subproject Management Office GOC Government of China SSS Single Source Selection GNI Gross National Income TAL Technical Assistance Loan IBRD International Bank for Reconstruction and Development TCC/ TCC5 Technical Cooperation Credit Technical Cooperation Credit 5 th IC Individual Consultant TRC Technical Review Committee ICB International Competitive Bidding TTL Task Team Leader IDA International Development Association IEG Independent Evaluation Group Regional Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Co-Task Team Leader: Axel van Trotsenburg Klaus Rohland Sudhir Shetty Sudhir Shetty Chorching Goh Jianqing Chen

3 PEOPLE S REPUBLIC OF CHINA ECONOMIC TRANSFORMATION AND INSTITUTIONAL CAPACITY BUILDING PROJECT TABLE OF CONTENTS I. STRATEGIC CONTEXT...10 A. Country Context B. Sectoral and Institutional Context C. Higher Level Objectives to which the Project Contributes II. PROJECT DEVELOPMENT OBJECTIVES...11 A. PDO B. Project Beneficiaries C. PDO Level Results Indicators III. PROJECT DESCRIPTION...12 A. Project Components B. Lending Instrument C. Lessons Learned and Reflected in the Project Design D. Value-added IV. IMPLEMENTATION...15 A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. PROJECT RISKS AND MITIGATION MEASURES...16 A. Risk Ratings Summary Table B. Overall Risk Rating Explanation VI. APPRAISAL SUMMARY...17 A. Economic and Financial Analyses B. Technical C. Financial Management Page

4 D. Procurement E. Social (including Safeguards) F. Environment (including Safeguards) G. Other Safeguards Policies Triggered (if required) Annex 1: Results Framework and Monitoring...21 Annex 2: Detailed Project Description...23 Annex 3: Implementation Arrangements...25 Annex 4: Operational Risk Assessment Framework (ORAF)...36 Annex 5: Implementation Support Plan...40 Annex 6: The First Batch of Subprojects...41

5 ... PAD DATA SHEET China China Economic Transformation and Institutional Capacity Building (P144270) PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASPC Report No.: PAD736 Basic Information Project ID EA Category Team Leader P B - Partial Assessment Chorching Goh Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 01-Sep Dec-2019 Expected Effectiveness Date Expected Closing Date 01-Sep Dec-2019 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Sudhir Shetty Sudhir Shetty Klaus Rohland Axel van Trotsenburg. Borrower: People's Republic of China Responsible Agency: International Department, Ministry of Finance Contact: Mr. Mo Xiaolong Title: Director Telephone No.: xl.mo@mof.gov.cn. Project Financing Data(in USD Million) [ X ] Loan [ ] Grant [ ] Guarantee [ ] Credit [ ] IDA Grant [ ] Other Total Project Cost: Total Bank Financing: Financing Gap: 0.00.

6 Financing Source Amount Borrower 1.70 International Bank for Reconstruction and Development Total Expected Disbursements (in USD Million) Fiscal Year Annual Cumulati ve Proposed Development Objective(s) Project Development Objectives are to (i) inform China s policy making and (ii) strengthen capacity to implement priority reform areas articulated in China s Five-Year Plans and other development programs.. Components Component Name Component A: Analytical outputs (for example sectoral research, technical studies, and topical reports). Component B: Implementation support, project management and capacity building activities (such as training and knowledge sharing, secondments program, scholarships, overseas study in technical areas. Sector Board Economic Policy. Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Institutional Data Major Sector Sector % Adaptation Co-benefits % Public Administration, Law, and Justice Public Administration, Law, and Justice Central government administration Sub-national government administration Total Cost (USD Millions) Mitigation Co-benefits %

7 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project.. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Economic management Macroeconomic management 45 Public sector governance Other public sector governance 15 Environment and natural resources management Environmental policies and institutions 20 Social protection and risk management Social safety nets 20 Total 100. Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ]. Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ]. Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP Legal Covenants X X X X X X X X X X

8 Name Recurrent Due Date Frequency Consistency with WB Safeguards Policies Description of Covenant X The Borrower shall cause each SIA, as applicable, to ensure that every Subproject to be supported under the Project is carried out under terms of reference satisfactory to the Bank, and that such terms of reference are consistent with, and pay due attention to, the Bank s Safeguards Policies. Name Recurrent Due Date Frequency Subproject Management Office (SMO) Description of Covenant X The Borrower shall cause each SIA to establish, as a condition for Subproject financing under the Loan, and thereafter maintain until the completion of the relevant Subproject or Subprojects, a Subproject Management Office at the SIA level, headed by a qualified officer and assigned staff in adequate numbers to design proposals and implement the respective Subprojects.. Bank Staff Team Composition Name Title Specialization Unit Chorching Goh Lead Economist Task Team Leader EASPR Jianqing Chen Operations Analyst Co-Team Lead and Operations Analyst EASPC Alejandro Alcala Gerez Senior Counsel Senior Counsel LEGES Junxue Chu Senior Finance Officer Senior Finance Officer CTRLN Chongwu Sun Jun Zeng Feng Ji Senior Environmental Specialist Social Development Specialist Senior Environmental Specialist Environmental management Social management Environmental management Jingrong He Procurement Specialist Procurement Management Fang Zhang Financial Management Specialist Financial Management EASCS EASCS EASCS EASR2 EASFM Haiyan Wang Senior Finance Officer Senior Finance Officer CTRLN Chunlin Zhang Lead Private Sector Development Specialist Peer reviewer AFTFE Nidhi Khattri Lead Evaluation Officer Peer reviewer IEGCS Robert R. Taliercio Lead Economist peer reviewer EASPR Deepak Bhattasali Lead Economist peer reviewer SASEP

9 lin Yang Program Assistant team support EACCF Tom C. Tsui Consultant operations EASPC Jingyi Jiang Consultant project design EASPC Qijiang Zhai Consultant M&E EASPR. Locations Country First Administrative Division Location Planned Actual Comments China Beijing Beijing Shi X

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11 I. STRATEGIC CONTEXT A. Country Context 1. China s economic performance has been impressive and its social development has been equally remarkable. All Millennium Development Goals have either been reached or are within reach. Social productivity and peoples living standards have also improved significantly. While in many respects this rapid growth and its accompanying structural changes have served the country well, they have also led to economic, environmental, and social imbalances. Spurred by high savings, cheap finance, and export-oriented policies, growth has depended on capital, energy, and resource intensive methods, which have caused environmental damages. In addition, the gap in income distribution has continued to widen. As a result, a growing recognition exists of the need to change the country s growth pattern by deepening reforms that can address these social, economic, and environmental imbalances, while maintaining stable growth. 2. China is now a higher middle-income country, well positioned to become a high income country in the next decade. China s leadership has recognized that achieving this requires a new growth model that is more balanced, based on productivity increases and innovations rather than on mobilization of resources, more equal in the distribution of the benefits of growth, and more sustainable in environmental outcomes. These objectives are embodied in the 12th Five Year Plan. Attaining these objectives will require reforms that assign a different thrust and orientation to government programs and policies and stronger institutions. This will allow the government to replace direct controls with market processes where these would deliver more efficient outcomes and to offer greater transparency, effectiveness, and efficiency when meeting core government responsibilities. The purpose of this loan is to inform policy making for effective reforms and to strengthen its institutions as it enters this next phase of reform and growth. B. Sectoral and Institutional Context 3. In November 2013, at the Third Plenum meeting of the 18 th Communist Party of China (CPC) Central Committee, a comprehensive reform plan was revealed. A number of initiatives related to financial and fiscal reforms have already been disclosed since November. 4. Despite China s impressive performance, the capacity of its government departments to design and implement policies and projects varies widely; in many cases, the empirical base to inform and support decisions is either incomplete or very weak. The proposed project will support the design and implementation of policy and program efforts in selected areas, as requested by the Government of China (GOC). 5. In the first batch of submitted concepts to PMO, such issues ranging from subnational government debt issues, social security integration, and autonomy to tax and to set tax rates, and Renminbi internationalization were proposed. These issues will enhance understanding of 10

12 potential reform directions in the financial and fiscal reforms. Concepts related to poverty reduction, regional disparity, and industrial upgrading were also in the first batch of submissions and these are studies that will inform policymaking in China s transformation to high-income. C. Higher Level Objectives to which the Project Contributes 6. The higher level goals are to sharpen China s reform vision and to sustain the reform s momentum through expanding policymakers knowledge base and strengthening the client s technical and implementation capacity at both the central and local levels. The project s multisectoral nature and the scope of the analytical studies directly support the Country Partnership Strategy s objectives (FY2013 FY2016), namely, (i) Reenergizing the Drivers of Growth; (ii) Supporting Greener Growth; (iii) Promoting More Inclusive Development; and (iv) Advancing Mutually Beneficial Relations with the World. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 7. Project Development Objectives are to (i) inform China s policy making and (ii) strengthen capacity to implement priority reform areas articulated in China s Five-Year Plans and other development programs. B. Project Beneficiaries 8. The direct beneficiaries of the project are the national, provincial, and local government agencies involved in the implementation of the various subprojects that will be part of the overall project. Policies and reform, informed by the project s work, could influence China s development and growth trajectory which will affect not just China but the rest of the world. Furthermore, lessons from experiments and pilots in China can be gainfully shared with countries which intend to share China s knowledge and development experience. The design of the project components reflects the ideas and requirements of those beneficiaries. In addition, Chinese universities and research institutes are also expected to benefit from project implementation, possibly by being involved, on a sub-contracting basis, in subproject evaluations and screenings or by providing specific training or other services. C. PDO Level Results Indicators 9. Because of the project s umbrella design, setting appropriate and implementable PDO and results indicators is critical for measuring progress towards the end-target of furthering the government s reform and development agenda. Well-defined expected outcomes along with monitoring and evaluation indicators at the subproject level will be collected. At the aggregate PDO level, the Results Indicators include (a) the number of final studies submitted to policymakers (e.g., Bureau chiefs for SIAs at the local level, or Ministers for SIAs at the national 11

13 level) to support policymaking and (b) the number reports findings published on official websites or circulated as official memoranda within Ministries or Provincial Bureaus. These indicators help gauge the Project s impacts. III. PROJECT DESCRIPTION A. Project Components 10. Building on the experiences of previous technical cooperation projects, the proposed project intends to establish a simpler and more manageable component structure to promote smoother implementation. To allow flexibility to adapt to rapid changes in China s economic and social landscape in the coming years, the project is structured into two components: (A) Analytical outputs (viz. knowledge product generation and dissemination); and (B) Implementation support, project management, and capacity building activities. Component Component A. Analytical Outputs (Knowledge products generation and dissemination) Component B. Implementation Support, Project Management and Capacity Building Activities Description Types of analytical outputs include sectoral research, technical studies, and topical reports. The following six thematic areas will be priorities anticipated in China s development: 1. Fiscal and financial reform 2. Economic restructuring 3. Rural and urban integration 4. Green economy 5. Reform of the national innovation system 6. Public service delivery (education, healthcare, and social welfare.) Activities to be supported include 1. Various types of training and knowledge sharing (local/abroad) 2. Overseas study in technical areas and scholarships for professional development of senior officials in foreign universities/institutes. 3. Secondment programs to international organizations 4. Institution building (e.g., workshops, seminars, and courses) 5. Information platforms and information systems Management 6. Implementation support at the central and also subproject levels (e.g., financial management, budget oversight and disbursement, record keeping, procurement, monitoring and evaluation) 11. The project implementation is expected to take place over a five-year period. Details are in Annex 2. The project costs for the two components are divided 60 and 40 percent, respectively. 12

14 Component Component A: Analytical outputs (viz knowledge products generation and dissemination) Component B: Implementation support, project management and capacity building activities Project Cost and Financing Project costs (US$) IBRD financing (US$) Borrower Financing (US$) 22,020,000 21,000,000 1,020,000 14,680, ,000, ,000 Total Financing Required 36,700,000 35,000,000 1,700, There are two groups of subproject implementing agencies or direct beneficiaries. One group consists of government agencies e.g., Line Ministries which do not have repayment obligation to the Ministry of Finance for IBRD funds used for studies and capacity building. The other group consists of government agencies e.g., provincial or municipal governments which borrow from the Ministry of Finance to carry out studies and training. Two Groups of Beneficiaries (subproject implementing agencies) IBRD (US$) Group 1. Government agencies with no repayment obligation 22,443,125 Group 2. Government agencies with repayment obligation 12,469,375 Front end fees (0.25%) 87,500 Total 35,000,000 B. Lending Instrument 13. The Project will be financed through Investment Project Financing (IPF) in the amount of US$35 million. The Borrower has selected a US Dollar denominated, variable spread loan with repayment period of 24 years, including a 5 year grace period (see details in the Loan Agreement); the central and subnational government contribution equivalent (in kind and cash) in local currency of US$1.7 million. C. Lessons Learned and Reflected in the Project Design 14. As the proposed project is the sixth in a series of technical cooperation projects the first of which was approved in 1983, the GOC s continued interest in this type of assistance demonstrates the project s value to the client; in particular its broad coverage and strong capacity to respond rapidly and flexibly to client s needs have been highly appreciated. Client satisfaction has been matched by internal audits. Evaluations by the Bank s Independent Evaluation Group (IEG) of previous technical cooperation projects show that the relevance of the objectives was high, that relevance of the design was substantial, and that the key project objectives were substantially achieved. The fourth project (P042299) in the technical cooperation series was 13

15 closed at the end of 2009 and rated satisfactory by IEG, while the fifth (P085124), currently in operation, is also rated satisfactory. As established by the evaluations and client responses, the two most important characteristics of the project series have been (i) its built-in flexibility to allow projects to quickly address changing needs and opportunities, and (ii) its inherent advantage in creating opportunities for additional World Bank involvement in the design and implementation of China s reform process in, for example, the areas of fiscal reform, urban development, and disaster management. 15. The design of the proposed project is based on lessons learned during previous series of Technical Cooperation Credit (TCC) projects. As is well-documented, Technical Assistance Loans are relatively weak performers within the World Bank s portfolio, even when used by relatively advanced and sophisticated clients. The principal obstacles to a strong performance have been huge investment costs (in terms of manpower, skills, and institutional capacity) in overall project and subproject management; heavy bureaucracies; and uneven agency capacities, with agencies having a variety of backgrounds and levels of readiness. 16. Based on these lessons, the following project design changes are proposed: Simplification and increased transparency of the selection process for subprojects. Review and selection of subprojects will change from a rolling basis to an annual review. A flow-chart of the various steps (from application and review to the withdrawal of funds for implementation, procurement, and disbursement) will be published online. Enhancing technical quality of subproject. The MOF will convene a Technical Review Committee (TRC) of relevant government departments, and independent, outside experts to review and discuss the subproject proposals. Improved quality assurance and measuring of results. The project intends to introduce a rigorous way to provide quality assurance and ensure the measurability of results right from the start. Strengthening of the Project Management Office (PMO). The PMO will supplement staffing to strengthen project coordination and management as well as implementation support guiding financial management, procurement, monitoring /evaluation and social and environmental safeguards. D. Value-added 17. The proposed project is expected to continue to add significant value by providing knowledge to develop technical solutions and improve institutional capacities. The Bank is wellpositioned to respond to this project request by the GOC, as its rich pool of global knowledge on reform and development has already been requested and used effectively during previous technical assistance projects. In addition, the Bank s continuous and active involvement in China s economic reforms since the early 1980s uniquely enables it, among China s various 14

16 external partners, to understand and respond to the country s needs in an effective and timely manner and to help tailor global knowledge to local circumstances. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 18. Project Management Office (PMO). The Ministry of Finance (MOF), through a PMO already established in its International Department, will have overall responsibility for project implementation and responsibility for coordination with the Bank. The PMO is led by the Director General of the International Department. The PMO is responsible for advising and assisting all subproject agencies with day-to-day operations. 19. Subproject Implementation Agencies (SIA). Under the overall guidance of the PMO, all subprojects will be managed by their respective SIAs. The PMO will require each SIA to establish, as a condition for participating in the project, a Subproject Management Office (SMO) to manage all activities until completion. The SMO must be headed by a qualified officer and supported by adequate staff to not only design the proposal, but also implement it according to the approved proposal, Bank rules, and MOF guidelines. 20. Technical Review Committee (TRC). The TRC serves as the Project s technical review committee, a non-permanent roster of technical experts established and presided by MOF for the Project, with the responsibility for providing technical assistance to the PMO as required throughout Subproject preparation, implementation and review. The TRC consists of representatives from the various Ministries, national and local level agencies, academia, domestic and international experts. The roles and responsibilities of the Committee are (a) review and recommend subproject proposals based on their technical merits; (b) provide guidance and ensure due diligence in the technical review of proposals, and (c) support for the needed technical expertise. 21. Please refer to Annex 3 for details on implementation. B. Results Monitoring and Evaluation 22. A results framework and monitoring arrangements have been developed jointly with MOF and are described in the Project Operations Manual. The framework relies primarily on self-evaluation in order to develop useful lessons of experience to improve future activities. For each subproject, a set of qualitative and quantitative indicators and ratings benchmarks will be established at the outset. During implementation and at completion the indicators will be collected and the subproject will be rated on a four-point scale: Unsatisfactory, Partly Unsatisfactory, Satisfactory, and Outstanding. SIA will recommend the ratings based on the benchmarks that were established at the outset and the PMO will validate their recommendations. In order to improve activities over time, upon project completion, the lessons learned will be recorded for each subproject. These indicators, ratings judgments, and lessons 15

17 learned will form a monitoring database. Summary indicators and ratings of the overall project can be aggregated from subproject indicators and ratings. Indicators of the overall project and subprojects are set out respectively in detail Annex 1 Results Framework and Monitoring. C. Sustainability 23. The sustainability of the proposed project is, in many ways, tied inextricably to the sustainability of the reform momentum and the development agenda demonstrated by China s Five-Year Plans (FYP). As such, prospects for project sustainability are very good. The GOC has sound experience in planning and implementing its FYPs, with its 12 th FYP already well underway and its 13 th Plan (recently changed to being called Guideline ) under preparation. The probability of the reform program being carried out effectively is high. The project s sustainability is further increased by placing the PMO within MOF s International Department. The experience from the previous five technical cooperation projects is very valuable, and MOF has played a central role in managing the FYPs. V. PROJECT RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Stakeholder Risk Implementing Agency Risk - Capacity Rating Low Substantial Moderate Substantial - Implementing capacity of PMO - Implementing capacity of SIA - Governance Low Project Risk - Design Moderate - Social and environmental Low - Program and donor Low - Delivery monitoring and sustainability Low - Other Overall Implementation Risk B. Overall Risk Rating Explanation Moderate 24. The overall risk for project implementation has been assessed and rated as moderate. The umbrella project supports two components that each consist of many subprojects over the five-year implementation period. Therefore, especially at the MOF PMO level, sound capacity for day-to-day project management, implementation, and facilitation is required, along with a wide range of skill sets to manage the large and diverse set of subprojects. In addition, the broad range of SIAs, especially including many that have never worked with Bank procedures before, 16

18 complicates project management. The largest risk lies in the lack of sufficient resources (in particular staff numbers and skill sets) at the PMO and SIA levels. In addition, implementing agencies are likely constrained in their technical abilities to develop and design a solid work program with an implementable and robust M&E component. Mitigation measures for these risks are summarized in the Operational Risk Assessment Framework (Annex 4). VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 25. The project, like previous TCCs, has strong ownership by the PMO, the subproject implementation agencies (SIAs), their central/parent agencies, and government officials. There will be significant opportunities for effective dissemination, policy impacts, replication, and scaling up from the subprojects. Their potential will be considered during screening and subproject selection and will be tracked and included in the project s results framework. The results from component (A) viz. analytical outputs are expected to represent an array of new knowledge not only for the various agencies but for China s top leadership in formulating policies. One subproject that supported a background study on pensions, financed by TCC5, has effected changes in the pension system. The recommendations from the subproject have been adopted to integrate the rural-urban pension schemes. Component (B) of institutional strengthening in a number of areas will enhance the government s capacity for executing reform in a number of areas. B. Technical 26. The project content is determined by China's reform priorities, which reflects the ideas and requirements to address rapid changes in China's economic and social development in the coming years. The first batch of over 50 proposals from various government departments was submitted. The first batch of subprojects was selected by MOF PMO and Technical Review Committee (TRC) according to the methodology and criteria set out in the operations manual. See Annex 6 for more information on the subprojects selected under thematic areas identified. C. Financial Management 27. The Project Management Office (PMO) housed at the International Department of the Ministry of Finance (MOF) will be responsible for overall project implementation and for coordination with the Bank. This is an umbrella project and a large number of sub-projects will be selected upon approval by MOF PMO and the Bank s no-objection, and implemented by sub implementing agencies (SIAs). To ensure efficient and effective project financial management (FM), the project FM functions, including project accounting and financial reporting, will be centralized at the MOF PMO. The MOF International Department s Finance and Statistics Division (FSD) will be part of the MOF PMO and assign two division staff to 17

19 handle day-to-day project FM and disbursement related work. A Designated Account (DA) will be opened at the Treasury Department of MOF. The financial staff in the FSD and the Treasury Department has extensive experiences with Bank operations and domestic funds management requirements. 28. The assessment of the project financial management arrangements recommends that the MOF PMO supplement staff to enhance its ability to timely address the project s financial management requirements. The following management measures have been agreed: (a) updating of financial management section in the Operation Manual (OM), acceptable to the Bank, to clearly define FM responsibilities and to standardize project FM procedures; (b) extensive FM training provided by the Bank and the MOF PMO to SIAs; (c) the hiring/contracting of an additional experienced financial staff or development of an information system to strengthen MOF PMO monitoring and guidance to sub-projects. 29. With implementation of the proposed actions, the FM arrangements will satisfy the World Bank s requirements under OP/BP See Annex 3 for additional information. D. Procurement 30. The Project Management Office (PMO) in the International Department of MOF will continue to serve as the project management office at the central level and carry out overall project procurement management and provide procurement guidance to the various SIAs. The key procurement risk is a lack of staff at the PMO level to carry out procurement quality control. To mitigate this risk, the following actions have been discussed and agreed with PMO: (i) preparation of the procurement section in the Operation Manual (OM), acceptable to the Bank, to clearly define responsibilities for the procurement management and to standardize project procurement procedures; (ii) additional procurement training for SIA staff; and (iii) the hiring of one additional staff member with procurement experience to strengthen capacity in procurement at the PMO. The subproject proposals prepared by the SIAs will include the procurement plans for the goods, consulting and non-consulting services to be financed. The procurement plans will be reviewed as part of the subproject appraisal and review process. Additional information on procurement is provided in Annex 3. E. Social (including Safeguards) 31. There is no presence of indigenous people communities (IPs), as defined by the Bank s OP4.10, in the areas where the project s first batch of sub projects policy studies will be undertaken. In the unlikely event that presence of indigenous people communities in project area is indicated for subsequent batches of sub projects, then the project ESMF which provides for this will be applied. 18

20 32. Due to the nature of the project, it is not expected that the project will support any civil works or directly lead to investment of any civil works. Involuntary resettlement is not expected. The Bank s OP4.12 is not triggered. 33. To address any social issue that might occur during project implementation, an Environment and Social Management Framework (ESMF) has been prepared. (See Para ). F. Environment (including Safeguards) 34. The project supports technical assistance of training and policy research. No civil works will be financed. Samples of potential subproject proposals (such as research or studies) have been reviewed by the Bank team. It was found that policy recommendations may have some environmental and social impacts. Environmental Assessment (OP4.01) is triggered. The project is classified as a Category B project. 35. As subprojects are selected on an annual basis, an Environmental and Social Management Framework (ESMF) has been prepared and incorporated into the Operation Manual. The ESMF will guide environment and social safeguard compliance during implementation. All subprojects will be screened for potential environmental and social impacts and mitigation and management measures will be developed. The ESMF defines these four steps: (i) screen for potential environmental and social safeguard impacts and propose safeguards documents required; (ii) review the screening and determination of the required safeguards documents; (iii) prepare safeguard documents, consultation, and disclosure; and (iv) review and clear safeguard documents, combined with supervision. 36. The ESMF defines the roles and responsibilities of the PMO and SMOs for safeguard compliance in implementation and supervision. Capacity building activities to support the use of the ESMF may include training and engagement of experienced environmental and social experts. 37. Consultations on the ESMF were held during Bank missions from December 2013 to March The ESMF was locally disclosed on March 21, 2014 and disclosed at the Bank s InfoShop on March 21, G. Gender (including Safeguards) 38. Since the mid-1990s, China has made remarkable progress in reducing gender disparities. 1 An appropriate legal and organizational framework is in place for protecting women and implementing China s strategy the Program for the Development of Chinese Women ( ). Given the importance given to reducing gender disparities in China s Development Plan, the proposed Project will give attention to the gender dimensions. In particular, some of 1 Gender Action Plan (Update for Fiscal Years ) 19

21 the analytical outputs for rural and urban integration; and public service delivery will be expected to be gender informed. Amongst the first batch of proposals under review (please see Annex 6), two sub-projects illustrate some of the ways that can be used to address gender disparity issues. For example, on agriculture/rural economy related proposals (i.e., Development of agriculture production and operation organizations and capacity building in Henan and how to incentivize modern agricultural technology innovation), findings from these studies will benefit women peasants in terms of returns to their labor, time-use improvement, productivity, and value-added of their production. On human capital related proposals on health, and social assistance, (i.e., Means-testing and social assistance targeting ; Human capital development in public health sector of Shaanxi Province ; Developing Health Service Industry For a Developed Economy ), the studies will undoubtedly yield disproportionate female beneficiaries. H. Other Safeguards Policies Triggered (if required) 39. No other safeguards policies are triggered by this operation. 20

22 CHINA: Economic Transformation and Institutional Capacity Building Annex 1: Results Framework and Monitoring Project Development Objectives Project Development Objectives are to (i) inform China s policy making and (ii) strengthen capacity to implement priority reform areas articulated in China s Five-Year Plans and other development programs. Each subproject will have its own evaluation framework that will be agreed between the PMO and the SMO. A set of qualitative and quantitative indicators and ratings benchmarks will be established at the outset. During implementation and at completion the indicators will be collected and the subproject will be rated on a four-point scale: Unsatisfactory, Partly Unsatisfactory, Satisfactory, and Outstanding. Project Development Objective Indicators Indicator Name Core Study recommendation s adopted Studies published. Unit of Measure Intermediate Results Indicators Baseline (2014) Cumulative Target Values Frequency Number Annual Number Annual Cumulative Target Values Data Source/ Methodolo gy Questionnai res Progress Reports Supervision Reports Questionnai res Progress Reports Supervision Reports Data Source/ Responsibility for Data Collection SMO (Collection) PMO (Validation and Compilation) SMO (Collection) PMO (Validation and Compilation) Responsibility for Indicator Name Core Unit of Baseline Frequency Methodolo Data Collection 21

23 High level policy seminars Findings disseminated Number of beneficiaries participating in capacity building activities Measure (2014) gy Number annual Number annual Number annual Questionnai res Progress Reports Supervision Reports Questionnai res Progress Reports Supervision Reports Questionnai res Progress Reports Supervision Reports SMO (Collection) PMO (Validation and Compilation) SMO (Collection) PMO (Validation and Compilation) SMO (Collection) PMO (Validation and Compilation) 22

24 Overall CHINA: Economic Transformation and Institutional Capacity Building Annex 2: Detailed Project Description 1. The proposed project is expected to have about 80 subprojects over its five-year period in two components: (A) Analytical Outputs and (B) Implementation Support, Project Management, and Capacity Building Activities. The average budget of subprojects is expected to be about US$400,000. The first batch of subprojects has been identified (see Annex 6) and it forms the basis of the discussion in this Annex. Component A: Analytical Outputs 2. Analytical outputs and activities under Component A are expected to comprise strategic plans, sectoral documents, implementation reports, technical studies and topical research, among others. All outputs would be related to the six themes that are priorities for long-term development: 1. Fiscal and financial reform. Subprojects will advise policy makers on how to promote efficient and inclusive growth through fiscal and tax reforms. An example is a proposed comprehensive study of local debt, budgetary planning, and tax instruments. 2. Economic restructuring. Subprojects will include both policy analysis and recommendations and pilot zone case studies. 3. Rural and urban integration. Subprojects will involve research on social welfare, public services, rural development, and poverty reduction. An example is proposed research to design an effective household income verification system to better target social assistance. 4. Green economy. Subprojects will address environmental sustainability and resource conservation. An example is a study of the effects of urbanization on environmental carrying capacity. 5. Reform of the national innovation system. Subprojects will study the role of government in promoting innovation and increasing technology conversion. An example is an evaluation of the impacts of demand-side incentives such as government procurement on innovation. 6. Public service delivery. Subprojects would relate to schooling, healthcare, and social welfare. Component B: Implementation Support, Project Management, and Capacity Building Activities 3. The project activities that will help to build capacity include: 1. Training and knowledge sharing (domestic and overseas) 23

25 2. Overseas study in technical areas and scholarships to visit foreign universities for professional development 3. Secondment programs to international organizations 4. Institution building (for example through workshops, seminars, and courses) 5. Information platforms or information systems, and 6. Implementation support and project management (e.g., financial management, budget oversight and disbursement, record keeping, procurement, monitoring and evaluation) 4. Each year, a call-for-proposals will be organized and announced widely. Subproject proposals will be submitted to the MOF PMO for review, screening, and selection, with assistance of the Technical Review Committee (TRC). Each round of submissions is expected to have about 60 proposals. After the selection, a formal announcement and notification will be delivered, followed by a training workshop for the accepted subproject implementation agencies covering all aspects of project management. 5. Project management begins with a call for proposals to all departments or agencies of the central and local governments at the provincial and municipal (prefectural) levels. This is followed by receiving and reviewing submitted subproject proposals. Subproject proposals must be submitted in compliance with the Subproject Proposal Guidelines and Operational Manual issued by the PMO. The PMO organizes a Technical Review Committee (TRC) of relevant government departments, and independent, outside experts to review and discuss the subproject proposals using pre-agreed selection criteria. Based on the technical review, the PMO will select subproject proposals and forward them for the Bank s no-objection. The Bank will provide feedback as part of its supervisory role. After subprojects are selected, the PMO will train SIAs on different aspects of Project implementation, consistent with Bank policies (e.g., financial management, procurement) and the applicable requirements of the Project Operations Manual (e.g., safeguards, disbursement). Annex 3 provides details. 24

26 CHINA: Economic Transformation and Institutional Capacity Building Project Annex 3: Implementation Arrangements Project Institutional and Implementation Arrangements 1. Project Management Office (PMO). The Ministry of Finance (MOF) will have the overall responsibility for implementing the project through the existing Project Management Office in its International Department. The PMO is led by the Director General of the International Department. This office has had deep and extensive experience with administering World Bank projects and it is also responsible for advising and assisting all subproject agencies with their operations. 2. The PMO will supplement staffing to strengthen project coordination and management as well as implementation support guiding financial management, procurement, monitoring /evaluation and social and environmental safeguards. Over time, the PMO could also be strengthened by adopting global good practices in screening and selection. 3. Subproject Implementation Agencies (SIAs). Under the overall guidance and oversight of the PMO, subprojects will be managed by relevant SIAs. Based on experience with previous loans, we anticipate that there will be approximately 60-80SIAs. The PMO will require each SIA to establish as a condition for participating in the project a Subproject Management Office (SMO) to supervise and oversee all activities from application through completion. Each SMO will be headed by a qualified officer and supported by adequate staff to design proposals and to implement subprojects in compliance with their plans, the World Bank s rules, and the MOF s guidelines. 4. Subproject Selection. The PMO is taking measures to simplify and increase the transparency of subproject selection. Selection will change from a rolling basis to an annual competition. Each year, a call for proposals will be widely announced, and each proposal round is expected to attract about 60 proposals. Proposals can be submitted by national and provincial agencies involved in the development or implementation of policies and programs related to economic reform priorities. Following review by the MOF PMO with assistance of the Technical Review Committee (TRC), new subprojects will be announced and subproject agencies will be enrolled in a training workshop on all aspects of project management. Other plans are to use up-to-date web and communication technologies to increase transparency and improve the review and selection process, for example by using a website to track the status of subproject submissions and providing a hot line (using or phone) for applicants to request guidance on the application process. The Project Management Office (PMO) also plans to develop a simple flow-chart of the various steps and transactions involved with an application, from application and review to the withdrawal of funds for implementation, procurement, and disbursement. There are four specific steps in project selection: 25

27 Any department or agency of the central government or of local governments at the provincial or municipal (prefectural) level may apply for subproject financing by submitting a draft concept note (in Chinese and English) and a proposal (in Chinese) to the PMO. Submissions must follow the Subproject Proposal Guidelines issued by the PMO and the Project Operations Manual. The PMO initially screens the long list of proposals and shares with the Bank. The Bank reviews the long list of proposals prior to detailed review. The PMO will organize a Technical Review Committee (TRC) of relevant government departments and outside experts to review and discuss the subproject proposals using preagreed selection criteria. Based on the technical review, the PMO will make a selection of subproject proposals and forward them for the Bank s approval on a no-objection basis. The Bank will review the selected subproject proposals and issue a no-objection letter if it determines that a proposal meets the selection criteria. If the Bank objects to a proposal, it would inform the PMO of its objection and the reasons. 5. Criteria for Subproject Evaluation and Selection. Subproject applications will be evaluated on several criteria. A subproject proposal should: Describe how the subproject would support the overall development objectives of the project; should be prepared in accordance with the Guidelines for Subproject Proposals and the Project Operations Manual, and should meet the provisions of any applicable World Bank Safeguard Policies and procedures. Describe specific objectives, activities, and expected results, including the subproject s relation to China s reform agenda and possibilities for replication and scaling up. Define the form and substance of subproject activities and outputs to show how subproject objectives will be realized. Demonstrate the SIA s strong ownership and firm commitment to the subproject by listing specific organizational resources, management, and staffing, along with other resources required for efficient and effective subproject execution. Include a detailed budget table and implementation plan, covering: o A procurement plan, with proposed procurement procedures for goods and technical assistance; this should include a description of consultant assignments, estimated costs, selection methods, expected terms of reference, submission dates, and expected contract durations. o Detailed descriptions of expenditures for staff training program and study tours. o Estimates of foreign and local costs of different expenditures. o Proposed subproject financing and disbursement plans, including a detailed description of the expenditures proposed to be financed. o A time-table for the various activities anticipated under the subproject. 26

28 o A detailed M&E strategy for subproject implementation and results/outcomes, including clearly specified indicators and adequate resources for M&E. 6. Quality control and results measurement. The project aims to introduce uniform quality monitoring and results measurement throughout the subproject cycle. Results frameworks and monitoring arrangements have been developed jointly with MOF and are described in the Operations Manual. The system relies primarily on self-evaluation in order to develop useful lessons of experience to improve future activities. 7. Each subproject will have its own evaluation framework and it should specify in the application how it would be evaluated. For each subproject, a set of qualitative and quantitative indicators and ratings benchmarks will be established at the outset and these should be related to the subproject s objectives (in the application) and to the Criteria for Evaluation and Selection (above). The framework will be reviewed and approved by the PMO. 8. During implementation and at completion the indicators will be collected and the subproject will be rated on a four-point scale: Unsatisfactory, Partly Unsatisfactory, Satisfactory, and Outstanding. The subproject team will recommend the ratings based on the benchmarks that were established at the outset and the PMO will validate the team s recommendations. In order to improve activities over time, upon subproject completion the lessons learned will be recorded for each subproject. These indicators, ratings judgments, and lessons will form a monitoring database. Summary indicators and ratings of the overall project can be aggregated from subproject indicators and ratings. 9. Responsibility for monitoring and evaluation of subprojects will be shared between the PMO and the SIAs, with specific monitoring criteria depending on the component: Component A: Studies and analytical outputs. Subproject implementation agencies (SIAs) are expected to submit progress and final reports to specific levels of government decision-makers and receive their feedback. In addition, SMOs will submit intermediate outputs at predetermined times specified in the proposal to the PMO. The PMO will aggregate this information and prepare half-yearly Progress Reports to the World Bank. Component B: Capacity-building. SIAs will develop specific outcome/results indicators, to be measured in various ways, including surveys among activity participants. Subprojects designed for training that involves participants other than government officials will be monitored and evaluated in a similar way, with special focus on innovation and dissemination of the learning. 10. The World Bank will work closely with MOF s PMO to strengthen its monitoring and evaluation. In particular: 27