China has experienced a remarkable period of rapid growth spanning three decades, shifting from a centrally planned to a market based economy with reforms begun in 1978. During this time, it grew at an average rate of about 9.7% per year, with exceptionally strong growth between 2003-2007 averaging about 11% per year. Growth remained strong during the recent global financial crisis, reflecting massive stimulus and strong underlying growth drivers.

China became the world’s second largest economy in 2010; increasingly, it is playing an important and influential role in the global economy. The discussion now tends to focus on how China can avoid “the middle-income trap,” as experience shows that transitioning from middle-income to high-income status can be more difficult than moving up from low to middle income.

Yet, with a per capita gross national income of about US$4,260 (2010), China is an upper middle-income country that has complex development needs. With the second largest number of consumption-poor in the world after India, poverty reduction remains a fundamental challenge. Rapid economic ascendance has brought on many challenges as well, including demographics – issues related to an aging population as well as the internal migration of labor; high inequality; rapid urbanization; challenges to environmental sustainability; and external imbalances. Significant policy adjustments are required in order for China’s growth to be sustainable. 

In its 11th Five Year Plan (2006 - 2010), the Government of China set forth a “people centered” strategy aiming to achieve a “harmonious society” that balances economic growth with distributional and ecological concerns. Under this plan, considerable progress was made in improving basic public services in social protection, education and health, but structural issues remain under the strong momentum of China’s traditional pattern of growth.

The 12th Five Year Plan (2011 - 2015), recently approved by the National People’s Congress, comes at a time when the need to rebalance toward a more domestic demand-led, service sector-oriented pattern of growth is stronger than before, partly due to the less favorable global outlook.  The Plan has set five main objectives:

• Maintaining stable and fast economic growth, with a focus on price stabilization, more job creation, improved balance of payment, and higher quality of growth.
• Achieving major progress in economic restructuring, with higher share of household consumption and the service sector, further urbanization, more balanced rural-urban development, lower energy intensity and carbon emissions, and better environment.
• Increasing people's incomes, reducing poverty and improving the living standards and quality of life.
• Expanding access to basic public services, increasing the educational level of the population, developing a sound legal system, and ensuring a stable and harmonious society.
• Deepening the reforms in the fiscal, financial, pricing and other key sectors, changing the role of the state, improving governance and efficiency, and further integrating into the world economy.

Based on a cooperative relationship spanning 30 years, the Bank continues to play an important development role in China, supporting activities through a variety of instruments, including lending and analytical/advisory services. The current Country Partnership Strategy (CPS, 2006 - 2010) focuses on five thematic areas of engagement. In particular, the Bank aims to help:

• Integrate China into the world economy.
• Reduce poverty, inequality and social exclusion.
• Manage resource scarcity and environmental challenges.
• Deepen financial intermediation.
• Improve public and market institutions.

A mid-term progress report in January 2009 found that the strategy is well on track to fulfill most targets, with intensified engagement in areas such as China’s integration into the world economy, especially regarding south-south learning, integrated urban-rural development, as well as energy efficiency, environment and climate change.

As of June 30, 2010, Bank cumulative lending (IBRD and IDA) to China was more than $47.41 billion for 323 projects. In 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, the majority of Bank-supported projects feature environmental objectives, many with global implications. About 75% of ongoing Bank-financed projects, and approximately 80% of planned projects, include a strong focus on the environment. The Bank also pays particular attention to the western and central provinces, where the poverty rates are significantly higher than in coastal provinces.  About 80% of active projects are in the interior and western provinces.

New approaches are also being introduced to address energy efficiency, renewable energy, air pollution reduction and climate change. This includes new models to finance energy efficiency, piloting and expanding the use of innovative renewable energy sources, and rehabilitating and modernizing urban district heating systems and building energy efficiency. Urban environmental management is also being strengthened to help cities meet challenges such as rapid motorization.

As China develops, economic analysis, policy advice, technical assistance and training have become an essential part of the Bank’s engagement. 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 fourth largest portfolio country. Since its first investment in 1985, the IFC has invested in 193 projects in China as of June 30, 2010. For these projects, IFC has provided $4.73 billion: $3.7 billion from IFC’s own account, $754 million from participating banks and $249 million in guarantees provided by IFC.

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. Measured in terms of the World Bank poverty standard for China, the poverty rate fell from 65% to around 4% between 1981 and 2007, and the absolute number of poor fell  by well over half a billion people.

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. The country marked another important milestone when it became the Bank’s third largest shareholder in 2010 -- in 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%).