Since initiating market reforms in 1978, China has shifted from a centrally planned to a market based economy and experienced rapid economic and social development. GDP growth averaging about 10 percent a year has lifted more than 600 million people out of poverty. All Millennium Development Goals have been reached or are within reach.

With a population of 1.3 billion, China recently became the second largest economy and is increasingly playing an important and influential role in the global economy.

Yet China remains a developing country and its market reforms are incomplete. In 2011, China’s gross national income per capita of $4,940 ranked 114th in the world; and over 170 million people still live below the $1.25-a-day international poverty line. With the second largest number of poor in the world after India, poverty reduction remains a fundamental challenge.

Rapid economic ascendance has brought on many challenges as well, including high inequality; rapid urbanization; challenges to environmental sustainability; and external imbalances. China also faces demographic pressures related to an aging population and the internal migration of labor.

Significant policy adjustments are required in order for China’s growth to be sustainable.  Experience shows that transitioning from middle-income to high-income status can be more difficult than moving up from low to middle income.

China’s 12th Five-Year Plan (2011-2015) forcefully addresses these issues. It highlights the development of services and measures to address environmental and social imbalances, setting targets to reduce pollution, to increase energy efficiency, to improve access to education and healthcare, and to expand social protection. Its annual growth target of 7 percent signals the intention to focus on quality of life, rather than pace of growth.  

Building on a cooperative relationship spanning over 30 years, the World Bank Group’s Country Partnership Strategy (CPS) for fiscal years 2013 through 2016 is aligned with China’s 12th Five-Year Plan. It is also informed by the joint study, China 2030, prepared by the World Bank and the Development Research Center of the State Council. To support China’s goal of a harmonious society, the Bank Group will focus on three main areas of engagement:

• Supporting greener growth, by helping China shift to a more sustainable energy path; enhancing urban environmental services; promoting low-carbon urban transport; promoting sustainable agriculture practices; piloting sustainable natural resource management approaches; demonstrating pollution management; and strengthening mechanisms for managing climate change.
• Promoting more inclusive development, by increasing access to quality health services and social protection; strengthening skills development programs, including for migrant workers; enhancing opportunities in rural areas and small towns; and improving transport connectivity for more balanced regional development.
• Advancing mutually beneficial relations with the world, by supporting China’s South-South cooperation and China’s role as a global stakeholder.

In addition, the Bank will provide client-driven knowledge services that help underpin reforms needed to reenergize the drivers of growth.

The Bank Group’s most valuable contribution in China remains its role in bringing and applying ideas, innovation, and knowledge. The CPS emphasizes knowledge sharing and cooperation through advice and analytical products and through investments at the provincial level that introduce and demonstrate new approaches.

As of October 31, 2012, Bank cumulative lending (IBRD and IDA) to China was about $51 billion for 349 projects. The portfolio is concentrated in environment, transportation, urban development, rural development, energy, water resources management, and human development.

In line with the government’s increased emphasis on growth that is balanced with social and environmental concerns, the focus of the Bank’s activities in China has shifted significantly.

Today, more than 70% of the Bank’s portfolio has environmental objectives, many with global implications. The Bank also pays particular attention to the western and central provinces, where poverty rates are significantly higher than in coastal provinces.  About two-thirds of active projects are in lagging interior provinces.

New approaches are also being introduced to finance investments to improve energy efficiency, pilot and expand the use of innovative renewable energy sources, and rehabilitate and modernize urban district heating systems. Urban environmental management is being strengthened to help cities meet challenges such as rapid motorization.

As China develops, collaborative research and analysis are becoming an important part of the Bank’s engagement. For example,  China 2030: Building a Modern, Harmonious, and Creative Society, a joint research report by the World Bank and the Development Research Center of China’s State Council, lays out six strategic directions for China’s future: completing the transition to a market economy; accelerating the pace of open innovation; going “green” to transform environmental stresses into green growth as a driver for development; expanding opportunities and services such as health, education and access to jobs for all people; modernizing and strengthening its domestic fiscal system; and seeking mutually beneficial relations with the world by connecting China’s structural reforms to the changing international economy.

To meet growing demand from other developing countries to learn from China, the Bank also plays the role of knowledge broker to support China in sharing its development experience.

International Finance Corporation (IFC)

China is IFC’s fifth largest portfolio country. Since its first investment in 1985, the IFC has invested about $6 billion (combined IFC's own account and mobilization) in around 240 projects in China. In fiscal year 2012, IFC raised $650 million in total commitments for 20 projects. 

IFC’s strategic priorities in China focus on climate change, including renewable energy, energy efficiency, water efficiency, clean tech, green policy and green credit; balanced rural and urban development, including a focus on frontier regions, food safety, scaling up microfinance outreach and capacity, and agricultural linkages; and China’s outbound investment, including partnerships with Chinese firms to invest in other emerging economies, particularly in Africa, mobilizing capital, syndication loans, and sharing knowledge and standards.

China’s dramatic progress in reducing poverty over the past three decades is well known. More than 600 million people were lifted out of poverty as China’s poverty rate fell from 84 percent in 1981 to 13 percent in 2008, as measured by the percentage of people living on the equivalent of US$1.25 of less per day in 2005 purchasing price parity terms.

Substantial progress was made in human development indicators as well, contributing to global efforts to achieve the Millennium Development Goals.

China began its partnership with the Bank in 1980, just as it embarked on its reforms. Starting as a recipient of support from the International Development Association (IDA), the Bank’s fund for the poorest, China graduated from IDA in 1999 and became a contributor in 2007. It will be the third largest shareholder in the World Bank upon completion of the capital increase approved in 2010, the 30th anniversary year of its partnership. 

Throughout this time, the nature of the Bank’s activities in China changed to meet the country’s rapidly evolving needs. Initially, the Bank provided technical assistance to introduce basic economic reforms, modern project management methodologies, and new technologies. Later, the focus shifted to institutional strengthening and knowledge transfer. The Bank now encourages knowledge sharing to enable the rest of the world to learn from China’s experience.

The Loess Plateau Watershed Rehabilitation Project set out to restore this area, home to more than 50 million people, where centuries of overuse and overgrazing had led to one of the highest erosion rates in the world and widespread poverty. More than 2.5 million people were lifted out of poverty; incomes doubled; natural resources were protected and perennial vegetation cover increased from 17% to 34%; employment rates increased; food supplies were secured with per capita grain output increasing from 365 kg to 591 kg per year; and ecological balance was restored in a vast area considered by many to be beyond help.

The Renewable Energy Development Project, also supported by the Global Environment Facility, promoted the development of a sustainable photovoltaic market to provide reliable, affordable and environment-friendly energy to villagers who live off the electric grid. The project supported the sale of solar systems to approximately 400,000 rural households and institutions, and the supply of solar electricity to isolated semi-nomadic populations translated into improved access to communications and education, improved indoor air quality, and reduced CO2 emissions. The project helped combine international technology advances with China’s proven low-cost production capabilities, which, in turn, helped make China the number one producer of solar equipment and components around the world.

The Forestry Development in Poor Areas Project was part of a larger World Bank effort to preserve and expand forests in China, which is not only a key environmental challenge, but also a development priority in the poorest, remote mountainous areas of central and Western China where agricultural land is extremely poor and forest resources are the most important production asset available. The project contributed to a significant decline in poverty in project areas, from 40% in 1998 to 17.5% in 2005. Average annual per capita income increased by 150% and forest coverage increased by 6.7% over 1997 levels.

Although China compares favorably with international education indicators for middle-income countries, reaching the last 5% of the school-age population has been the most difficult and costly. The Basic Education in Western Areas Project focused on attacking the root causes of inequality in access and quality, particularly among girls and ethnic minorities in rural areas. The project constructed or upgraded 1,525 schools, supplied almost seven million textbooks, and trained almost 11,000 principals and more than 154,000 teachers. Today, there is universal enrollment of poor boys, girls and ethnic minorities in the primary and junior secondary schools in the five project provinces.

The Chongqing Urban Environment Project helped develop modern sewerage and garbage disposal for a rapidly growing city home to 32 million people. Water quality has been improving steadily since 2003, and by 2006, 100% of the water met safety standards for drinking after treatment. Organic waste matter declined slightly or at least stabilized despite huge increases in pollution loads, and a modern, sanitary landfill meeting international standards replaced district dump sites and haphazard and hazardous garbage dumps.

In health, the China Tuberculosis Control Project was the largest tuberculosis control project funded by the World Bank in the world, covering 668 million people in 16 provinces. The project objective was fully achieved and targets for case detection and cure rates for tuberculosis were exceeded. The project registered and treated close to 1.6 million new patients. More than 1.5 million of these patients completed treatment (94.2%) and nearly 1.5 million patients were cured (93.8%).