The World Bank In China

Since China began to open up and reform its economy in 1978, GDP growth has averaged almost 10 percent a year, and more than 800 million people have been lifted out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.

China is now an upper-middle-income country.  It will be important going forward that poverty alleviation efforts increasingly shift to address the vulnerabilities faced by the large number of people still considered poor by the standards of middle-income countries, including those living in urban areas.

China’s high growth based on resource-intensive manufacturing, exports, and low-paid labor has largely reached its limits and has led to economic, social, and environmental imbalances. Reducing these imbalances requires shifts in the structure of the economy from low-end manufacturing to higher-end manufacturing and services, and from investment to consumption.

Over the past few years, growth has moderated in the face of structural constraints, including declining labor force growth, diminishing returns to investment, and slowing productivity. The challenge going forward is to find new drivers of growth while addressing the social and environmental legacies of China’s previous development path.

China’s rapid economic growth exceeded the pace of institutional development, and there are important institutional and reform gaps that China needs to address to ensure a high-quality and sustainable growth path. The role of the state needs to evolve and focus on providing stable market expectations and a clear and fair business environment, as well as strengthening the regulatory system and the rule of law to further support the market system.

Given its size, China is central to important regional and global development issues. China is the largest emitter of greenhouse gases, with per capita emissions now surpassing those of the European Union, although slightly below the OECD average and well below the United States, and its air and water pollution affects other countries. Global environmental problems cannot be solved without China’s engagement. Moreover, maintaining economic growth at reasonable levels has important spillovers for the growth of the rest of the world economy.

Many of the complex development challenges that China faces are relevant to other countries, including transitioning to a new growth model, rapid aging, building a cost-effective health system, and promoting a lower carbon energy path. China is a growing influence on other developing economies through trade, investment, and ideas.

Following real GDP growth of 2.3 percent in 2020, China’s economy is projected to grow by 8.5 percent in 2021, largely driven by base effects. The growth momentum is slowing reflecting the lagged impact of policy and macroprudential tightening, floods and the recent Delta outbreak. Although lingering tighter restrictions and cautious sentiment due to the recent Delta outbreaks will weigh on the consumption recovery, its impact is expected to be largely offset by robust foreign demand and moderate policy support in the latter half of the year. Near-term risks have shifted to the downside with the key risk being recurring outbreaks led by more transmissible COVID-19 variants which could lead to a significant economic disruption. Over the medium term, China’s economy is facing structural headwinds given adverse demographics, tepid productivity growth, and the legacies of excessive borrowing and environmental pollution. These challenges require attention, with short-term macroeconomic policies and structural reforms aimed at reinvigorating the shift to more balanced high-quality growth.

The government recently highlighted achieving common prosperity as a key economic objective, reinforcing signals of a possible shift in policy priorities towards tackling income inequality. Over the medium term, policies to tackle high inequality through more progressive taxation and a strengthened social protection system will ensure lasting poverty reduction, a larger middle class and help boost private consumption as a driver of growth.

Last Updated: Oct 12, 2021

China and the World Bank Group have worked together for over 40 years. The WBG’s new Country Partnership Framework (CPF) for FY2020 to 2025, issued in December 2019, reflects the evolution of the Bank Group’s relationship with China toward a decline in lending and a more selective engagement in line with the capital increase commitments agreed to by its shareholders in 2018.  

The CPF aims to help China address some of its remaining development challenges, notably the transition to more environmentally sustainable growth, strengthen key Chinese institutions engaged in economic and social development, and reduce inequality in lagging regions.

World Bank (IBRD) lending will decline over the CPF period and focus on supporting China in contributing to global public goods. As it does so, the Bank stands ready to provide more technical assistance and policy advice, as well as reimbursable advisory services (RAS), and the International Finance Corporation (IFC) will engage in China’s private sector, especially in investments in global public goods.

The CPF has three broad areas of engagement:

• Advancing market and fiscal reforms by improving the environment for competition and private sector development; and achieving more efficient and sustainable subnational fiscal management and infrastructure financing.
• Promoting greener growth by reducing air, soil, water, and marine plastic pollution; strengthening sustainable natural resource management; promoting low-carbon transport and cities; and facilitating the transition to a lower carbon energy path.
• Sharing the benefits of growth by increasing access to health and social services; and improving the quality of early childhood development.

In addition, under the CPF, the World Bank Group will aim to help increase the transparency of China’s lending and investment activities as well as emphasize the importance of promoting high standards of social and environmental risk management for these activities, and share applicable lessons and knowledge from China’s poverty reduction.

The CPF is informed by the Bank Group’s Systematic Country Diagnostic (SCD) published in early 2018 and other Bank studies including Innovative China: New Drivers of Growth published in 2019. At the CPF midpoint, the Bank Group will assess progress in CPF implementation.

Last Updated: Oct 12, 2021

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 Group’s fund for the poorest, China graduated from IDA in 1999 and became a donor in 2007. It became the World Bank’s third largest shareholder upon completion of the capital increase approved in 2010, the 30th anniversary of its partnership. 

The nature of the Bank’s activities in China has evolved over time as China’s needs and level of development have changed. In the early years, the World Bank brought international experience to help design economic reform strategies, improve project management, and address key bottlenecks to growth. More recently, this two-way relationship has evolved —the World Bank offers international expertise to help address China’s key development challenges and pilot reforms through projects and programs; and China’s development experiences enhance the Bank’s global knowledge and capacity to help other developing countries.

Research

Joint flagship studies have been important for deepening the dialogue on policies and Bank programs and provided a model for other middle-income countries. China 2030: Building a Modern, Harmonious, and Creative Society, a joint 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.

Urban China: Toward Efficient, Inclusive, and Sustainable Urbanization, also a joint report by the World Bank and the Development Research Center of China’s State Council, recommends that China curb rapid urban sprawl by reforming land requisition, give migrants urban residency and equal access to basic public services, and reform local finances by finding stable revenues and by allowing local governments to borrow directly within strict central rules.

Healthy China: Deepening Health Reform in China, Building High-Quality and Value-Based Service Delivery, a joint study on reforming China’s health system in collaboration with the Ministry of Finance, the National Health and Family Planning Commission, and the World Health Organization, recommends deeper healthcare reforms by creating a new model of people-centered quality integrated health care that strengthens primary care as the core of the health system; continuously improving health care quality; empowering patients with knowledge and understanding of health services; boosting the status of the health workforce, especially primary-care providers; allowing qualified private health providers to deliver cost-effective services; and prioritizing public investments.

Innovative China: New Drivers of Growth, a joint report by the Development Research Center of China’s State Council, the Ministry of Finance and the World Bank Group proposes that China addresses its productivity challenges by promoting the “three Ds” – removing distortions in the economy, accelerating diffusion of existing advanced technologies and innovations, and fostering discovery of new technologies, products, and processes so as to expand China’s productivity frontier. The report develops recommendations in seven areas to promote the “three Ds.” These recommendations focus on strengthening competition across product and factor markets and creating a level playing field for all investors, investing in human capital and improving the targeting of support for innovation and entrepreneurship, and adapting the model of economic governance to adjust the balance between the state and the market.

Projects

World Bank-financed projects introduced innovations or piloted new approaches and serve as platforms for knowledge exchange.  Many of them also placed a major emphasis on the environment and climate change. Here are some of our recent projects and results in China:

The Hunan Subnational Governance and Rural Public Service Delivery Program for Results, approved in February 2021, assists the province in delivering more equitable and efficient public services in rural areas. The financing supports measures to strengthen local debt management and provide results-oriented transfers aimed at reducing disparities in the quality of basic education in rural areas. It would also introduce greater accountability by making budget information more transparent and accessible to citizens.

The China Food Safety Improvement Project, approved in March 2021, helps China improve food safety management at both the national and targeted subnational levels, and reduce food safety risks. It will strengthen food safety regulations, enforcement, and compliance along selected value chains， consistent with global practices, and help farms and food enterprises to access finance for food safety technologies, and organize risk communication campaigns to promote food safety and advocate for healthier lifestyles.

The Emerging Infectious Diseases Prevention, Preparedness and Response Project, approved in June 2020, supports China in strengthening national and provincial systems to reduce the risk of zoonotic and other emerging health threats. The project introduces a multi-sectoral approach that brings together responses from public health, agriculture and food, as well as the environment and wildlife sectors.

The Sichuan Water Supply and Sanitation Public Private Partnership Project, approved in March 2020, is supporting improved water supply and sanitation services for more than 230,000 rural residents in Deyang in China’s Sichuan Province. Jointly prepared with IFC, the project promotes a more transparent service and financing model through a public-private partnership, which is performance-based and focuses on improved service delivery to customers. The project will contribute to domestic and global public goods by protecting the environment through reduced discharge of untreated wastewater into the tributaries of the Yangtze River.

The Hubei Smart and Sustainable Agriculture Project, approved in May 2020, promotes environmentally sustainable and climate-smart agriculture and improves agricultural food quality and safety in one of China’s leading agricultural producers. The project is expected to yield significant climate co-benefits and contribute to the achievement of China’s agriculture-related climate change commitments, including under the Paris Agreement.

The Jiangxi Eco-industrial Parks Project, approved in June 2020, will strengthen the province’s institutional and regulatory framework for eco-industrial parks, bringing them in line with international standards and helping to reduce the country’s pollution and greenhouse gas (GHG) emissions. The project will generate important lessons that could help make a tangible impact on China’s and thus the world’s environmental footprint.

The Renewable Energy and Battery Storage Promotion Project, approved in June 2019, aims to increase the integration and utilization of renewable energy by deploying battery storage systems at scale in China. The project will help China accelerate the ongoing clean energy transition and contribute to the country’s emission reduction targets. The project is being implemented by Hua Xia Bank which has committed co-financing of at least $450 million. Parallel technical assistance, financed by the Global Environmental Facility (GEF) and the Energy Sector Management Assistance Program (ESMAP), will help improve the policy and regulatory framework for green energy technologies, thereby reducing risks and encouraging private investment.

 The Guizhou Aged Care System Development Program-for-Results (PforR), approved in March 2019 and co-financed by the Agence Française de Développement (AFD), is the first World Bank-financed aged care PforR worldwide. The program is helping China address the challenge of population aging by developing a comprehensive policy and institutional framework for elderly care in the southwestern Guizhou Province, one of the poorest provinces in the country.  The support is focused on increasing equitable access to a basic package of care services for the elderly and strengthening the quality of services and the efficiency of the aged care system.

The Innovative Financing for Air Pollution Control in Jing-Jin-Ji Program (2016-2021), supports the Hua Xia Bank in providing enterprises with financing to reduce air pollutants and carbon emissions by increasing energy efficiency, investing in clean energy, and tightening air pollution control. The project focuses on the Beijing-Tianjin-Hebei (Jing-Jin-Ji) region and the surrounding provinces of Shandong, Shanxi, Inner Mongolia and Henan. The program is helping to combat climate change by reducing CO₂ emissions by 1.54 million tons per year, equivalent to avoiding nearly 10 GW of new coal power plants over lifetime of the investments.

The Hebei Air Pollution Prevention and Control Program (2016-2019) has supported the province’s efforts to reduce air pollution by implementing a combination of targeted measures including a continuous emission monitoring system, replacement of heavily polluting diesel buses with electric vehicles, and a switch from coal-fueled cookstoves to clean gas stoves.

The Ningxia Desertification Control and Ecological Protection Project (2012-2020) has helped improve the environment and living conditions of local communities while curbing desertification and land degradation and restoring vegetation. The project has also created new jobs and sources of income for local farmers.

The Guangxi Poverty Reduction Program for Results has supported institutional innovations in the province including the enhancement of a poverty reduction big data platform and an infrastructure project management information system, and integration of poverty reduction funds from multiple sources to improve the effectiveness and efficiency of poverty reduction efforts.

Last Updated: Oct 12, 2021