World Bank's New Partnership Strategy for China Focuses on Economic Integration, Poverty, and Sustainable Development

May 23, 2006

WASHINGTON, May 23, 2006—The World Bank’s Board of Executive Directors today discussed the World Bank Group’s new Country Partnership Strategy (CPS) for the People’s Republic of China covering the period 2006-2010. The Board endorsed its overall goals of helping to integrate China into the world economy, address poverty and inequality, manage resource scarcities and environmental challenges, strengthen the financial sector, and improve public and market institutions.

“The new Country Partnership Strategy recognizes clearly that helping China to strengthen its economy, manage its resources and environment, and improve governance, are important not only for the Chinese people but also for people all over the world,” said World Bank President Paul Wolfowitz.

China has grown rapidly since 1978, when it began to reform. Over the past 27 years, it has shifted from a centrally-planned to a market economy, maintained GDP growth of about 9 percent per year, and lifted 400 million people out of poverty. Considerable progress has also been made in implementing the structural reform agenda and achieving the commitments made during China’s accession to the World Trade Organization (WTO) in 2001. With a population of 1.3 billion, China recently became the world’s fourth largest economy and third largest trading nation.

Even so, China remains a developing country, with GDP per capita about $1,740 and more than 135 million people living on less than $1 a day—mostly in rural areas in the lagging inland provinces. It also faces daunting challenges in maintaining rapid growth; managing the resource demands and environmental consequences of growth; and addressing the resulting inequalities in income and opportunity, which could otherwise undermine the consensus needed to undertake growth-oriented policy reforms.

The Bank Group’s new partnership strategy aims to support China in addressing these challenges. Specifically, it aims to help:

  • Integrate China into the world economy, by deepening its participation in multilateral economic institutions, reducing internal and external barriers to trade and investment, and contributing to its overseas development efforts;
  • Reduce poverty, inequality and social exclusion, through promoting balanced urbanization, sustaining rural livelihoods, and expanding access to basic social and infrastructure services, particularly in rural areas;
  • Manage resource scarcity and environmental challenges, through reducing air pollution, conserving water resources and optimizing energy use (partly through pricing reforms), improving land administration and management, and observing international environmental conventions;
  • Deepen financial intermediation, by expanding access to financial services (especially among small- and medium-sized enterprises), developing the capital markets, managing systemic risks, and maintaining financial stability; and
  • Improve public and market institutions, by improving firm competitiveness, reforming public sector units, and rationalizing intergovernmental fiscal relations.

The CPS includes a growing role for the International Finance Corporation (IFC), which expects new investments to exceed $500 million per year. “One of China’s strengths is the government’s very strong emphasis on expanding the private sector,” said IFC’s Executive Vice President Lars Thunell.. “Many governments around the world talk about private sector development, but few do it as successfully as China. I also have been very impressed with the dynamism of the entrepreneurship and smaller businesses that I encountered on my recent visit.IFC will continue to provide technical assistance to help improve the business environment in China, while complementary investments help to strengthen the financial sector, shift assets into the private sector, and encourage the private sector to adopt international best practices”. Model transactions would set standards in areas like corporate governance while creating demonstration effects. At the same time, the Multilateral Investment Guarantee Agency will support infrastructure development through foreign direct investment by providing guarantees to investors that perceive significant non-commercial risk, particularly in China’s lagging regions.  

In support of the five major objectives, the CPS includes a large program of analytical and advisory services, research and training, to facilitate policy discussions and underpin future lending. IBRD expects to lend up to US$1.5 billion annually, with about 70 percent of proposed projects in poorer inland provinces. In general, projects will aim to promote policy and institutional reform and innovation on a limited and experimental basis, on the expectation that successful projects will be scaled up using government resources.

The CPS was prepared in close collaboration with the Government of China, and involved extensive consultations with the representatives of stakeholder groups, including central and local governments, the private sector, academia, civil society, and the donor community. “This CPS coincides with an evolution in the Bank Group’s relationship with China, as China not only continues to receive assistance from the Bank Group but also begins to share its development thinking and experiences with the Bank Group and the rest of the world,” said World Bank China Country Director David Dollar.

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