Document of The World Bank FOR OFFICIAL USE ONLY Report No. 18130 IMPLEMENTATION COMPLETION REPORT CHINA NATIONAL AFFORESTATION PROJECT (CR. 2145-CHA) June 30, 1998 Rural Development and Natural Resources Unit East Asia and Pacific Regional Office 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. CURRENCY EQUIVALENTS Currency Unit: Yuan (Y) 1989 $1 = Y4.72 1990 $1 = Y4.78 1991 $1 = Y5.32 1992 $1 = Y5.42 1993 $1 = Y5.73 1994 $1 = Y8.70 1995 $1 = Y8.40 1996 $1 = Y8.30 1997 $1 = Y8.30 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AE Afforestation Entity ABC Agricultural Bank of China CAF Chinese Academy of Forestry FDPA Forestry Development in Poor Areas Project FRDPP Forest Resource Development and Protection Project GEF Global Environment Facility ICR Implementation Completion Report MFO Ministry of Forestry (since May 1998, State Forestry Administration) NAP National Afforestation Project PMC Project Management Center (in MFO) SAR Staff Appraisal Report SDR Special Drawing Right SFA State Forestry Administration SFF State Forest Farm Vice President: Jean-Michel Severino Director: Yukon Huang Sector Manager: Geoffrey Fox Project Task Manager: Richard Scobey ICR Task Manager: Victoria Elliott FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT CHINA NATIONAL AFFORESTATION PROJECT (CR. 2145-CHA) CONTENTS Preface ............................................. i Evaluation Summary ............................................. ii PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Background .......................................... 1 B. Objectives .......................................... 1 C. Achievement of Objectives .......................................... 3 D. Major Factors Affecting the Project .......................................... 7 E. Future Operation and Sustainability of the Project ................................. ......... 8 F. Bank Performance .......................................... 11 G. Borrower Performance .......................................... 13 H. Assessment of Outcome .......................................... 14 I. Key Lessons Learned .......................................... 14 PART II: STATISTICAL TABLES Table 1: Summary of Assessment .16 Table 2: Related Bank Loans/Credits .17 Table 3: Project Timetable .18 Table 4 Credit Disbursements: Cumulative Estimated and Actual .18 Table 5: Key Indicators for Project Implementation .19 Table 6: Key Indicators for Project Operation .20 Table 7: Studies Included in Project .20 Table 8a: Project Costs (in US dollars) .......................................... 20 Table 8b: Project Costs (in Chinese Yuan) ............. ............................. 20 Table 8c: Project Financing .......................................... 21 Table 9: Economic Costs and Benefits .......................................... 21 Table 10: Status of Legal Covenants .......................................... 22 Table I1: Compliance with Operational Manual Statements ..................................... 23 Table 12: Bank Resources: Staff Inputs ........................................... 23 Table 13: Bank Resources: Missions .......................................... 24 APPENDICES A. Borrower's Contribution to the ICR .......................................... 25 B. ICR Mission's Aide-Memoire .......................................... 70 Maps: IBRD Maps 22268-22271, 22320 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. IMPLEMENTATION COMPLETION REPORT CHINA NATIONAL AFFORESTATION PROJECT (CR. 2145-CHA) PREFACE This is the implementation completion report (ICR) for the National Afforestation Project in China, for which Credit 2145-CHA in the amount of SDR 230 million ($300 million equivalent) was approved on May 29, 1990 and made effective on August 20, 1990. The credit was closed on December 6, 1997, one year after the date originally envisaged. The credit was fully disbursed, with the last disbursement on December 6, 1997. The ICR was prepared by Victoria Elliott (Principal Economist, PRMEP), with assistance from Norman Jones, John Tumbull and Tom Brummer (consultants) and Weiguo Zhou (EASRD). It was reviewed by Richard Scobey (Task Manager and China Country Coordinator, EASRD) and Geoffrey Fox (Manager, EASRD). The ICR mission took place in May 1998. The Borrower contributed to the preparation of the ICR by providing a very detailed and thoughtful Completion Report and annexes, which are included in this report, and commenting on the draft ICR. CHINA NATIONAL AFFORESTATION PROJECT (CR. 2145-CHA) EVALUATION SUMMARY INTRODUCTION 1. Before the National Afforestation Project (NAP), IDA had financed two forestry projects in China. The Forestry Development Project (Cr. 1605-CHA), approved in 1985, supported afforestation on state forest farms in three provinces and related research and extension activities. The Da Xing An Ling Forest Fire Rehabilitation Project (Cr. 1918-C[A) was a 1988 emergency operation to salvage the wood from trees killed in a massive fire, and to introduce improved fire detection and control systems. Several lessons emerged from these projects. First, China's forestry plantations were concentrated in the state sector, utilized traditional silvicultural and management practices that contributed to relatively low productivity levels by international standards, and were not supported by research targeted to operational needs. As a result, the government's large investment in plantation development was not particularly efficient and not redressing China's worsening deficit in wood supply. Second, the Ministry of Forestry's effective implementation of the two projects, particularly Da Xing An Ling, demonstrated its excellent institutional capacity and gave the Bank confidence that the government could plan and implement a large nation-wide afforestation program. PROJECT OBJECTIVES 2. NAP, the largest forestry investment ever funded by the Bank Group, had the following objectives: 1) To expand forest resources by assisting forest farms of various types to establish intensively managed forest stands on 985,000 hectares in 15 (later 16) provinces; 2) To improve the quality of forest plantations through the use of superior planting stock and by introducing and disseminating superior techniques of plantation establishment and intensive management; 3) To strengthen the research and extension programs that support plantation forestry; 4) To initiate an accelerated tree breeding program to increase the productivity of planting stock within 2 to 3 years; and 5) To create the organizational and managerial infrastructure to plan, appraise, finance, implement and evaluate plantation programs on a permanent basis. 3. Assessment of Objectives. The bulk of China's very limited wood supply was being drawn from the unsustainable exploitation of natural forests prior to the project. The government placed justifiably high priority on increasing timber production in a sustainable way, and the project's goal of wood production fit with both the Government and Bank's development strategies. The project design was relatively simple: a limited number of species were to be grown following standard silvicultural models, under about six different institutional arrangements. The market and price risks were managable, since plantations can produce wood of different dimensions according to market conditions. The risks of pests or fire destroying the plantations were minimized by incorporating suitable environmental guidelines into the project design. There was a real risk that forestry entities would not increase productivity enough to ensure good returns, but this was mitigated by the project financing arrangements, which provided an incentive -- heretofore unknown in Chinese forestry -- to maximize per-hectare returns. The research component was pragmatic, focusing only on the project's major tree species, and on the application of research completed but not yet applied. The plan for accelerated production of improved planting material aimed at introducing on a wide scale planting stock that was improved but not fully disseminated. IMPLEMENTATION EXPERIENCE AND RESULTS 4. The project is likely to exceed its physical objectives and goals for technological improvement. The re-estimated ERR is 23.5 percent and FRR is 21.7 percent, slightly above the original SAR estimates. The project also has significant, though difficult to quantify, environmental and institutional benefits. The project is likely to have an enduring impact on commercial forestry, particularly the development of the non-state sector. Overall the project is judged as highly satisfactory. Specific achievements are: - Plantation Establishment. The total area planted was 1,385,000 hectares, well above the SAR target of 985,000 hectares. The 40 per cent increase in the planting area was made possible, by savings arising from the devaluation of the Chinese currency against the SDR and lower unit planting costs. The planning and management systems that MFO put in place for NAP were able to prepare and implement this huge afforestation program smoothly and seamlessly. Project plantations are expected to produce 234 million cubic meters of wood as against 137 million cubic meters at appraisal. Many new silvicultural techniques have been developed, adopted, and disseminated in project and non-project areas. * Institutional. The project established an efficient administrative system within the provincial and county forestry bureaus. Project-financed overseas training and study tours accelerated the process of technology transfer. Thousands of county and township extension workers received field training in NAP silviculture methods. The project also stimulated new institutional linkages among forestry researchers, extension staff, and farmers. It fostered the creation of new non-state commercial forestry enterprises: of the 10,000 afforestation entities that participated in the project, about 40% were structured as new shareholding entities. - iv - * Environmental. Important environmental benefits will accrue from the project. Land under NAP plantations will lose 60-70 percent less soil due to erosion than they would have if left barren. Project plantations during their lifetimes are expected to fix an estimated 722 million tones of Co2, equivalent to a one-quarter reduction in China's annual emissions. The environmental guidelines for forest plantations developed under the NAP have extended new soil and water conservation and biodiversity protection benefits to other govermnent and non-government forestry investments. * Poverty Reduction. Although no specific poverty alleviation objectives were defined at appraisal, the project has had an important socio-economic impact in remote poor areas. More than one-third of the project counties are classified as below the poverty line, where the project investments have generated employment and production income that will double household income over the medium-term, and the project infrastructure has facilitated economic development. MAJOR FACTORS AFFECTING THE PROJECT 5. The only exogenous factor that significantly affected the project's outcome was the depreciation of the Chinese currency against the SDR. Because of the high share of local costs in the project, this permitted the credit to finance the establishment of an additional 400,000 hectares. Crucial to the project's success was high-level political support. The Minister of Forestry clearly signaled NAP's special status among MFO's hundreds of foreign and domestically financed programs. Political support was also mobilized at the provincial and county levels through the establishment of Leading Groups, which ensure the cooperation of local officials in budgeting counterpart funds and making land available. The main project manager, Qu Shuye, made a unique contribution to the project's success and forged an effective collaborative relationship with the Bank. During the implementation period, China's newly unleashed market forces coexisted with its traditional, tightly managed bureaucratic command structure. For NAP, this provided an attractive incentive structure for wood production combined with reliable implementation and careful management. 6. The Bank's performance was good. It reacted positively and swiftly to the government's initial proposal in early 1988. It resisted an early temptation to widen the project goals from afforestation to broad sector reform, concluding that to do so would make the project too complex for both the Bank and the MFO to implement successfully. This decision to focus squarely on afforestation was a crucial factor for project success. There was unusual continuity in staffing. From identification in 1988 through completion in 1998, NAP had only three task managers, and the same two forestry specialists were continuously involved over the entire period. Since MFO performed its management and supervision functions so effectively, Bank supervision missions were able to focus on technical issues, particularly on accelerating the adoption of improved silvicultural methods. The Bank also capitalized on the preparation of the two follow-on projects to accelerate the dissemination of NAP research findings on planting densities, fertilization and environmental monitoring. v - 7. The performance of MFO and the provincial and county forestry staff was highly satisfactory at all stages of the project. MFO secured financial and political commitment from the project provinces and delivered fully satisfactory technical preparation documents. All covenants were complied with. The quality of physical implementation, financial management, and overall planning and monitoring were consistently rated as highly satisfactory. The same management team remained in place throughout the life of the project. The Chinese Academy of Forestry seized the opportunities the project provided to demonstrate and operationalize its research in a commercial context. It rapidly created the ten research working groups needed for project purposes, and published hundreds of papers and training materials to disseminate NAP- related research. FUTURE OPERATION AND SUSTAINABILITY 8. The NAP plantations are virtually certain to survive and generate economic and financial returns as forecast. Project offices at the county, provincial and national levels remain in place and are monitoring the tending, thinning, fire and pest prevention, and loan repayment activities of the afforestation entities. Significant loss due to fires-or pests is unlikely, because measures are in place to monitor and control these risks, and project sites are in widely dispersed locations. However, the limited number of poplar and eucalyptus clones does present a marginally elevated disease risk in those species. The silvicultural and management techniques developed in NAP are now being adopted in many other plantation programs, projects and individual plantations. It is impossible to quantify the extent of this, but it is certain that NAP's impact on national wood production will be many times that of the project plantations alone. 9. The project created high-impact linkages among forestry research, extension, and farmers in ten subject areas. Although these relationships have been extended in the follow-on projects, the institutional linkages remain quite uneven, depending more on personal relationships or expedient financing arrangements than on sustainable incentives or structures. More broadly, the forestry research agenda remains somewhat isolated from commercial and environmental needs despite NAP's positive contributions. 10. Continued liberalization and economic growth in China will be favorable to wood markets and project production. In mid-1998, the government introduced a new ban on large- scale commercial harvesting of natural forests. If this is enforced, it should increase the price of plantation-grown wood. On the other hand, substitution of other materials (concrete for railway ties, metal for windows), already occurring, could intensify. This makes it especially important to strengthen research on wood properties and to improve the linkages between plantation establishment and market needs. To ensure that investment funds continue to flow efficiently to timber forestry in China, financing and taxation policies need to be made more attractive to private investors (the maturity periods offered by commercial banks are too short for timber investments, and forest products are highly taxed). -vi- KEY LESSONS 11. Following are the key lessons of the NAP. * The borrower was in the driver's seat. The project was initiated by the highest level of government and continued to enjoy strong political support throughout implementation. It was therefore somewhat inoculated against the bureaucratic obstacles that afflict other projects. The borrower's priorities were the bedrock of the project, upon which the Bank's goals of technology and institutional modernization were grafted. * Where institutional capacity is robust, an investment project can be treated as a program or sector loan. NAP's massive geographic scope and widely dispersed project sites meant that the Bank could never directly appraise or supervise a large sample of the physical works. MFO's excellent institutional capacity for supervision and management facilitated preparation ancf implementation, and allowed the Bank to focus on the key issue of technology transfer. * A project with highly focused investment objectives can nonetheless generate a broad sectoral impact. Although NAP's objectives were few and concrete, it served as a platform for the Bank and Chinese authorities to open up a dialogue on a wide range of forestry issues, including forest resource planning, natural forest management, wood products marketing and pricing, environmental management and poverty alleviation in remote areas. The dialogue initiated under NAP led to the development of two follow-on projects with significant sectoral policy content. NAP's simplicity of objectives, far from narrowing the sector dialogue, actually widened it by establishing a successful relationship. * Further sectoral policy reform is needed to complete the transition to a market economy. Despite China's rapid liberalization, decision-making and planning in the forestry sector still do not fully reflect market principles. The people managing the plantations need better tools -- and the freedom to use them -- for assessing market conditions to guide their harvesting and replanting decisions. * The project achieved a high impact from research that had already been done, but did not address the broader constraints affecting future research. Although the original objectives of the research component were appropriate, the Bank could have leveraged the component's impact more effectively during supervision. The linkage of financial control with technical standards was critical to project success. If on-lending and disbursement had been transferred to a financial intermediary, as originally envisioned, technology transfer and development impact would have been significantly limited. CHINA NATIONAL AFFORESTATION PROJECT (CR. 2145-CHA) PART 1: PROJECT IMPLEMENTATION ASSESSMENT A. BACKGROUND 1. Before the National Afforesation Project (NAP), IDA had supported two projects with the Ministry of Forestry (MFO). The Forestry Development Project (Cr. 1605-CHA) had been approved in 1985, when the Bank/China relationship was at an early stage. It financed afforestation and stand improvement on State Forest Farms in three provinces; construction of roads and wood processing facilities; and equipment and technical assistance to forest research and extension centers. By the time the NAP was proposed, the Bank and the MFO had come to realize that China's prevailing plantation forestry methods, including old-fashioned silvicultural practices and reliance on State Forest Farms, could never fill China's worsening deficit in wood products. In addition, it was clear that forestry research priorities were not being systematically based on the potential for economic gains, and that economic analysis played a very limited role in forestry planning. 2. The Da Xing An Ling Forest Fire Rehabilitation Project (Cr. 1918-CHA) was an emergency operation in 1988 to salvage the wood from trees killed in a massive fire, and to introduce improved fire detection and control systems. The salvage effort generated both economic and financial rates of return of over 200 percent. Experience in preparing this project strengthened the Bank's confidence in the MFO's implementation capacities, and helped MFO to appreciate the value of international experience and expertise. B. OBJECTIVES Statement of Objectives 3. The main objectives of the project, as stated in the SAR of May 1990, were: 1) To expand forest resources by assisting forest farms of various types to establish intensively managed forest stands on 985,000 hectares in 15 provinces; 2) To improve the quality of forest plantations through the use of superior planting stock and by introducing and disseminating superior techniques of plantation establishment and intensive management. 3) To strengthen the research and extension programs that support plantation forestry. 4) To initiate an accelerated tree breeding program to increase the productivity of planting stock within 2 to 3 years. -2 - 5) To create the organizational and managerial infrastructure to plan, appraise, finance, implement and evaluate plantation programs on a permanent basis. 4. These objectives remained unchanged during implementation. A sixteenth province was added shortly after project approval. Improving the environmental management of plantations emerged as an additional, separate goal during the early stages of implementation. Evaluation of the Objectives i) Consistency with Bank and Government Priorities 5. Wood markets had already been liberalized and there was excess demand for all types of wood for construction, mine pit props and consumer products. The bulk of China's very inadequate wood supply was being drawn from the unsustainable exploitation of natural forests. The government placed justifiably high priority on increasing timber production, in a sustainable way, to keep pace with economic growth. The project's overall goal of wood production addressed this priority. 6. For the Bank, the project offered an opportunity to invest in a program with national economic impact, and to operate on a long-desired sector-wide level instead of the province-by- province approach that the government consigned to the Bank in agriculture. ii) Plantation Program 7. The plantation program's huge scale initially seemed awesome and risky. However, the Ministry of Forestry had a track record of success in the Da Xing An Ling project. The forestry administration at all levels was well established and accustomed to implementing large scale programs. Indeed, since 1985 it had established 4 million hectares of "fast-growing high- yielding" plantations, the largest production forest program in the world. The project design was relatively simple: a limited number of species were to be grown following standard silvicultural models, under about six different institutional arrangements. 8. The market and price risks were managable, because wood is multi-purpose, and plantations can be managed so as to produce products of different dimensions according to market conditions. The risks of pests or fire destroying the plantations were minimized by imposing suitable guidelines. 9. Although the SAR foresaw "no major risks", there was, in retrospect, a risk that forestry entities -- accustomed to command-style, low-productivity afforestation programs --- would not, or could not, increase productivity enough to ensure good financial and economic returns. This risk, as it turned out, was mitigated by the financing arrangements. First, the GOC's onlending terms required the township or forest farm level implementing agencies to assume most of the repayment obligation for the IDA credit. Second, the entities' share of financing was provided in the form of labor and land, against a share of the final harvest. These two features provided an incentive -- heretofore unknown in Chinese forestry -- to maximize per-hectare returns. -3 - iii) Technology Improvement 10. Objectives 2, 3 and 4, which relate to improved technology, were based on the preparation missions' observations that China's prevailing "fast-growing, high-yielding" plantation program was delivering productivity far below international standards. The project had the pragmatic goal of ensuring that NAP plantations immediately adopted modem techniques that would deliver high returns. The research component focused only on the project's major tree species, and on the application of research completed but not yet applied due to the absence of effective linkages between research and extension. The plan for accelerated production of improved planting material aimed at introducing -- on a wide scale -- planting stock that was improved but not fully tested (instead of waiting the ten years or more necessary to develop new genetic material). 11. NAP did not tackle the broad range of scientific and institutional issues facing China's forestry research and extension programs. Could it have had more far-reaching objectives? Chinese forestry research is a massive endeavor, involving dozens of institutes and universities under national, provincial and local jurisdiction. To rationalize and modernize this program would take a concerted effort lasting decades, would not necessarily have borrower support and would have conflicted with the project's production goals. It was wise, therefore, to have limited NAP's goals for research. iv) Institutional Goals 12. The project had secondary institutional goals aimed both at the structure of the industry and at the MFO itself. On the structural side, it aimed to foster the establishment of commercially oriented, locally-run, timber enterprises. State Forest Farms, which then dominated plantation forestry, offered little potential for increased production or income gains for poor farmers. Although the MFO was initially reluctant to move away from the low-risk and familiar world of State Forest Farms, during preparation it was agreed that only 25 per cent of the project support would go to SFFs. The project's financing and monitoring mechanisms were designed to encourage high-productivity forestry in afforestation entities having a more arms'- length relationship with the government. 13. The government forestry administraton already functioned well at all levels. The project aimed mainly to introduce new tools for planning, assessing and monitoring plantation activities. C. ACHIEVEMENT OF OBJECTIVES Plantation Establishment 14. The physical objectives of the project were significantly exceeded. The total area planted was 1,385,000 hectares. This is equivalent to the total forested area of Kenya, or to the annual forest loss in Indonesia -- a remarkable accomplishment in only four years. The financing of the 40 per cent increase in the planting area was made possible by devaluation of the Chinese currency against the SDR. The planning and management systems that MFO had put in -4 - place for NAP were able to prepare and implement this additional program smoothly and seamlessly. 15. The survival rates are over 90 per cent. Timber yields are projected to exceed by 10 percent to 20 percent the predicted yields at appraisal, which in turn were estimated to exceed normal plantation growth by at least 10 percent. Overall, the project plantations are expected to produce 234 million cubic meters of wood as against 137 million cubic meters at appraisal. Of the added 97 million cubic meters, about 57 million is attributable to the increased planting area, and 40 million ha to increased per-hectare productivity. Technology Transfer 16. Many new techniques were developed, adopted and promulgated in the selection, establishment and maintenance of NAP plantations. The table below summarizes the major technical differences between the "fast-growing high-yielding" program and the NAP, as well as their impact on production, returns and environmental protection. 17. Project afforestation entities were required to use these new techniques as a condition of receiving project funds to reimburse their costs. Substandard stands either had to be replanted or were not reimbursed. Table 1: Technology Transfer in NAP Old FGHY program |NAP as appraised |Impact Planning Little use of cost-benefit or rate Investment based on species Financed only highest return of return analysis rates of return species and sites Incomplete matching of species Species matched to site Higher productivity and sites conditions Planting Material Low use of superior seed Source-identified seeds used Permits species/site wherever possible matching Minimal use of clonal material 6% of Chinese Fir, 100% of Higher value through poplar, 26% of eucalyptus selection of desired plant planted with clonal material characteristics Seedling quality low and 98% of seedlings used were Higher volume and quality unregulated Class 1 of wood; fewer seedlings per ha. Silviculture High planting densities Reduced planting densities Lower estab. costs, higher (up to 4000 stems/ha) (below 3000 stems/ha) wood production per hectare - 5 - Limited fertilization Scientifically based fertilizer Lower establishment costs, use less runoff Intensive soil preparation Little or no site clearing; Lower establishment costs, and/or large planting holes smaller planting holes less soil erosion Planting up and down slope Planting across contour Less soil erosion Management and Finance Establishment financed by up- Financed by on-lending of IDA Incentive to maximize front grants from different credit and "sweat equity" returns levels of government Automatic disbursement of Disbursement of credit funds All plantations meet quality grants; ineffective quality only after quality checked standards monitoring Institutional 18. The project established an efficient administrative system within the provincial and county forestry bureaus. The links up and down the project management chain and across local government entities (through the Leading Groups) have worked well. The PMC has introduced constructive changes in the MFO's (formerly rather rigid) "corporate culture", including intensified vertical and horizontal communications among administrative levels, franker discussions, accountability for results, and delegation to younger staff. The project financed overseas training and study tours for about 80 individuals in forestry bureaus at all levels. Their exposure to modern techniques has accelerated the process of technology transfer. Further opening up of China's forestry sector was stimulated by language training for staff and the publication of a specialized Chinese/English forestry glossary. 19. At the local level, thousand of country and township extension workers received field training in NAP silviculture methods. These workers are now disseminating these methods, illustrated by NAP demonstration plantations, to all local farmers establishing timber stands. The project also stimulated new institutional linkages between forestry researchers, extension staff and plantation operators. The project supplied land for research trials and demonstrations, in turn generating direct contacts among formerly unconnected people. 20. NAP succeeded in fostering the development and creativity of new commercial forestry enterprises: of the 10,000 afforestation entities that participated in the project, about 40% were structured as new shareholding entities. Environmental 21. Important environrental benefits will accrue from both the project plantations themselves and the wider application of environmental guidelines developed in the project. The borrower estimates that soils under NAP plantations will retain about 10-15 per cent more soil -6- moisture, and lose 60-70 percent less soil due to erosion, than they would have if left barren. Moreover, the project plantations during their lifetimes would fix an estimated 722 million tons of C02, equivalent to a one-quarter reduction in China's annual C02 emissions. The environmental guidelines for forest plantations developed under the NAP will extend the soil and water conservation and biodiversity protection benefits to other government and private financed plantations. Poverty Reduction 22. Although no specific poverty alleviation objectives were defined at appraisal, NAP was expected to disproportionately improve incomes in poorer communities, since forest plantations are typically in remote hilly areas. One third of the 316 NAP participating counties with NAP plantations are classified as "poverty" counties under national or provincial guidelines. 23. At completion, it appears that the project has helped reduce poverty in several ways. First, it created more than one million person-years of paid employment for plantation establishment and initial tending. Additional jobs will be created when plantations are thinned and harvested. Project wages have tended to lag behind prevailing urban wage levels, so these jobs are typically done by men and women with the fewest other income opportunities. 24. Second, individual farmers and local communities will earn a share of the revenue from thinning and final harvest. Some 72 per cent of project plantations are being implemented by collective, township or county shareholding entities (as distinct from State Forest Farms). Farmers will receive between 20 and 80 per cent of the after-tax wood revenues, depending on whether the plantations are on individual or collective land. The townships' shares would typically be used for local infrastructure improvements. As for the 22 per cent of the project accounted for by State Forest Farms, more than half of this amount will be jointly developed with local farmers from whom the SFF leases land. 25. The farmers will typically get 30 per cent of the pre-tax revenues. Although the farmers' shares appear modest, it must be remembered that the hilly land used for plantations has a low opportunity cost, and also that the farmers' labor is directly compensated by wages. 26. The borrower's contribution to the ICR includes an illustrative snapshot of the NAP's benefits to a typical country. 27. Because of timber plantations' long rotation period, an afforestation entity needs another source of income to survive and to finance the establishment costs during the growing period. Virtually all NAP participants have other plantations and/or small agro-processing or aquaculture activities that generate income and permit them to repay the loan. The most destitute families or townships, therefore, cannot participate in timber investments. The Bank's follow-on project, Forestry Development in Poor Areas (approved in May 1998), aims at developing fruit, nut and other non-timber trees that provide early cash flow and are therefore more suited to poor areas. -7- Rates of Return and NPV 28. The rates of return and NPV at appraisal and completion are summarized in the following table and given in more detail in Annex Table 9. Table 2: Rates of Return and NPV Economic Rate of Return j Financial Rate of Return NPV Appraisal I Completion Appraisal Completion I Appraisal Completion 22.8 % 23.5 % 1 19.3 % 21.7 % 3.6 billion Y 9.1 billion Y 29. The ERRs and FRRs at completion are slighly higher than at appraisal, reflecting the area and productivity increases. Overall, there are differences among species. Returns to Chinese fir and pine species are estimated about 3.5 percentage points higher than at appraisal because the improved planting material program has been implemented more quickly, and has generated better growth improvements, than anticipated. Estimated returns to eucalyptus are lower than expected at appraisal because different varieties were used. The large increase in the estimated NPV is attributable mainly to the increase in planted area, and secondarily to the increase in productivity and the decrease in establishment costs. 30. The estimated returns are sensitive to assumptions about the stands' age at final harvest. Large dimension timber is always more valuable per cubic meter than small dimension wood, but the size of the premium varies over time depending on wood utilization patterns in the marketplace. To optimize returns from a stand, harvesting time should be determined by considering physical growth curves in combination with wood prices and replanting options. The NAP local officials and afforestation entities need, but do not yet have, simple methods to make these calculations. D. MAJOR FACTORS AFFECTING THE PROJECT Exogenous 31. The only exogenous factor that significantly affected the project's outcome was the depreciation of the Chinese currency against the SDR. Because of the high share of local costs in the project, this permitted the credit to finance the establishment of an additional 400,000 hectares. 32. World and domestic prices of forest products declined slightly in real terms during the project period. Wages increased in real terms, but this cost increase was more than offset by reduced use of labor and other inputs for site preparation, planting and fertilizing. Factors within Government Control 33. Crucial to the project's success was consistent, high-level political support. The State Council had endorsed the proposal even before it was put to the Bank. The Minister of Forestry - 8 - demonstrated the project's importance, by, for example, personally chairing the Project Leading Group, and meeting with Bank missions. Such Ministerial attention is unusual in China and clearly signaled NAP's special status among MFO's hundreds of foreign and domestically financed programs. 34. Political support was also mobilized at the provincial and county levels through the establishment of Leading Groups. These groups (akin to steering committees or advisory boards) involve local officials, local branches of Ministry of Finance and the Agricultural Bank of China. They serve as a mechanism to ensure the cooperation of local officials in budgeting counterpart funds, making land available, etc. and proved to be instrumental in ensuring the adequacy of counterpart funds. 35. The Minister's selection of an outstanding project manager (Qu Shuye, who had been the Director of the Silviculture Department) turned out to be a major contributor to the project's success. He combined a broad vision of a modernized forestry sector with meticulous monitoring of plantation standards and a knack for recruiting able staff. 36. During the implementation period, China's newly unleashed market forces coexisted with its traditional, tightly managed bureaucratic command structure. For NAP, this provided an attractive incentive structure for wood production combined with reliable implementation of decisions and directives. At the same time, prevailing forestry practices, deeply rooted in the command economy, proved slow to change. (For example, planting sites and holes were prepared with excessive care and cost, because plantation managers were rewarded and penalized on the basis of total plant survival, not cost-effectiveness.) There remains a reliance on directives in preference to market signals. Project Elements 37. The project , like most in China's agriculture sector financed little foreign technical assistance. Instead, Bank preparation and supervision missions were expected to -- and did -- include world class forestry experts, whom the Chinese used effectively as consultants to their program. The International Advisory Panel on Research was the only significant foreign technical assistance. The recommendations of its two missions were not effectively incorporated into the project research program, or pursued by Bank supervision missions. 38. Two project requirements -- an annual survey of wood prices and the preparation of comprehensive forest resource management plans for all the participating province -- did not have a direct impact on the implementation of NAP or the design of follow-on projects, but they did help to deepen the MFO's capacities and experience in these relatively unfamiliar areas. E. FUTURE OPERATION AND SUSTAINABILITY OF THE PROJECT 39. Afforestation projects are unusual because significant returns don't accrue until at least seven, and as much as twenty, years after the investment is made. Longer term systemic - 9 - changes, likewise, bear fruit only gradually, as new generations of forests are established. In NAP, therefore, sustainability has two dimensions: * the future of the project plantations themselves, to be harvested between 1997 and 2014, depending on species, and * the adoption of the technical, institutional and intellectual improvements generated by the project in other plantation activities. Project Plantations 40. The NAP plantations are virtually certain to survive and generate economic and financial returns as forecast. Project offices at the county, provincial and national levels remain in place and are monitoring the tending, thinning, fire and pest prevention and loan repayment activities of the afforestation entities. Leading Groups also remain in place and will in particular ensure repayment of the IDA credit and government financing. 41. Significant loss due to fires or pests is unlikely, because measures are in place to monitor and control these risks, and because project sites are in widely dispersed locations. However, the limited number of poplar and eucalyptus clones in use does present a marginally elevated disease risk in those species. 42. Some changes in stand management between now and final harvest could help to maximize total returns. In particular: * Thinning to lower densities, especially of the earliest-planted stands, would produce higher total wood production by reducing inter-tree competition. * Improved tree growth rates should lead to a corresponding decrease in planned rotation age. * The timing of final harvest should -- rather than remaining as prescribed in the afforestation models -- be a management decision based on actual growth and wood properties, market prices, interest rates and opportunity costs of the land. The PMC should develop some simple models incorporating these variables to help provincial and county foresters make these decisions. Afforestation Program Generally i) Technical Aspects 43. The silvicultural and management techniques developed in NAP are now being adopted in many other plantation programs, projects and individual plantations. It is impossible to quantify the extent of this, but it is certain that NAP's impact on national wood production will - 10- be many times that of the project plantations alone. Following are examples of national and local programs that have adopted NAP technologies: Table 3: Adopting of NAP Technologies Program Location Chinese National Plantation Technical Guidelines, 1997 National Forest Resource Development and Production Project 725,000 ha. in 17 provinces (IDA) l FDPA (IDA/IBRD) 315,000 ha. in 12 provinces Community Forestry Project (New Zealand sponsored) 2,500 ha. in Fujian Three Gorges Afforestation Project (MFO) 110 State Forest Farms in Fujian Province 14,600 ha. Adoption of NAP-style local financing for plantations Guizhou province ii) Institutional Aspects 44. The project successfully challenged the MFO and its provincial and country level offices to fortify their already solid implementation capabilities. 45. The project created high-impact linkages between forestry research, extension and commercial plantations in 10 subject areas. Although these relationships have been extended in the FRDPP, they may not all survive when FRDPP funding ends, nor is there evidence that they have been adopted by research groups in other areas. The institutional linkages remain quite uneven, depending more on personal relationships or expedient financing arrangements than on in-built incentives or structures. More broadly, the forestry research agenda remains fragmented and somewhat isolated from commercial and environmental needs despite NAP's positive contributions. iii) Markets and Policy Environment 46. Continued liberalization and economic growth in China will be favorable to wood markets. In mid 1998, the Chinese government began to phase in a ban on large-scale commercial harvesting of natural forests. If this is fully implemented and enforced, it should increase the price of plantation-grown wood. On the other hand, substitution of other materials (concrete for railway ties, metal for windows), already occurring, could intensify. This makes it especially important to strengthen research on wood properties and to improve the linkages between plantation establishment and market needs. 47. Financial intermediation poses a challenge, as it does throughout the economy. To ensure that investment funds continue to flow to timber forestry in China, financing and taxation regimes need to be made more attractive to investors. Available government and ABC financing carries low interest rates, but maturities that are too short for most timber crops. Moreover, forest products are highly taxed: taxes and fees typically take about 30 percent of gross revenues. A policy paper and action plan to improve the incentive and financing structure for investment in plantation forestry would be a useful contribution if it could be informed by NAP experience and analytical methods, and be linked to the Bank Group's ongoing sector work on rural and micro-credit issues. Follow-on Projects 48. NAP has been followed directly by two Bank Group-supported national forestry projects. The Forest Resource Development and Protection Project (FRDPP) was approved in 1994 and is being implemented satisfactorily in its seventeen provinces. It replicates and builds on NAP's technology improvements for commercial plantations, but also broadens out into the establishment of watershed protection forests and strengthening of sector-wide planning and management capacities. 49. The more recent Forest Development in Poor Areas Project (FDPA), approved in May 1998, moves away from commercial timber plantations, which are best implemented in areas with well established institutions and reasonable growing conditions, toward forestry activities suited to poor households in remote mountainous areas. It relies on the proven capacities of the State Forestry Agency (formerly the MFO) and its local units, but unlike NAP and FRDPP, its design drew extensively on beneficiary participation. F. BANK PERFORMANCE 50. The Bank's performance was characterized by responsiveness, continuity and a consistent focus on technical improvement. Responsiveness: 51. The Bank reacted positively to the government's initial proposal in early 1988, and sent an identification mission in September 1988. The project offered an opportunity to work on a national, sector-wide scale, unlike the single-province, multi-activity agricultural development projects that the Chinese authorities preferred the Bank to finance. 52. Initially, some in the Bank proposed to widen the project goals from afforestation to broad sector reform. It was decided, however, that to do so would lengthen the preparation period; not respond to the borrower's priorities, and make the project too complex for both the Bank and the MFO to implement successfully. This decision to focus squarely on afforestation and its supporting activities was a crucial factor for project success. 53. After identification, the Bank had planned to engage a firm of forestry consultants to prepare the project. But the MFO insisted on taking full responsibility for preparation. They agreed to use consultants only for particular aspects -- the economic and financial analysis and on-lending arrangements -- where their own expertise was inadequate. MFO then submitted a "model" preparation document for one province. After reviewing it, the Bank agreed to the - 12 - MFO's proposal. This somewhat risky decision proved to be sound, because it stimulated the creation of project teams in every county and "ownership" of the project throughout implementation. The Bank did engage consultants to review and refine the MFO work after it was completed; this resulted in a few modifications to project design. Continuity 54. From identification in 1988 through completion in 1998, NAP had only three task managers. In addition, the same two forestry specialists each participated in preparation, appraisal and most supervision missions. This unusual continuity in the Bank's project team allowed missions to work efficiently despite the project's geographic scale; fostered personal relationships (which are important in China), and permitted targeted use of expert consultants. The borrower has particularly praised the continuous supervision of the accelerated planting material development program by its designer, Norman Jones, after whom it is named. Consistency of Focus 55. During implementation, the MFO's management systems ensured that plantation establishment (and the concomitant monitoring, procurement, reporting and financial activities) proceeded smoothly. This permitted Bank supervision to focus consistently on technical issues. During project design some compromises had to be made because the borrower had resisted introducing a number of the technologies known to be effective elsewhere in the world. During supervisions it was possible to make adjustments, to seize on opportunities for faster modernization. 56. Major technical issues emphasized by successive missions included: . insistence on use of selected planting material * better nursery practices to improve the quality of seedlings * increasing the number of eucalyptus and poplar clones in use * proper staff training in pesticide use * planting on the contour and other environmental measures * decreasing planting densities 57. The Bank also capitalized on the preparation of the follow-on FRDPP project, to accelerate the dissemination of NAP research findings on planting densities, fertilization and environmental monitoring. 58. As for the research and extension component (which accounted for only 2 per cent of total project costs) Bank supervision missions ensured that it was being implemented as appraised, but did not attempt to use it as a vehicle for a broader dialogue about the modernization of forestry research. It also did not effectively pursue implementation of the two technical reports of the International Advisory Panel on research issues. - 13 - G. BORROWER PERFORMANCE Ministry of Forestry and Chinese Academy of Forestry 59. The performance of the staff at PMC and the provincial, prefecture, muncipal, county, and township forestry offices was highly satisfactory at all stages of the project. At the preparation and appraisal stage, PMC effectively secured financial and political commitment from the project provinces. PMC and the provinces delivered fully satisfactory technical preparation documents that appropriately incorporated the recommendations of Bank missions and the preparation consultants. 60. During implementation, all covenants were complied with. The quality of physical implementation, financial management and overall planning and adaptation was consistently rated as highly satisfactory -- an impressive achievement considering that more than 1,000 project staff were involved in 16 provinces. The same management team remained in place throughout the life of the project in PMC and most of the provinces. They developed smooth procedures for monitoring the work of the project afforestation entities. The project management offices facilitated Bank supervision by arranging field visits to remote areas and providing data and timely reports in English. Again, much of this credit is due to the dynamic project manager, Qu Shuye, and his two successors. 61. The Chinese Academy of Forestry seized the opportunities the project provided to demonstrate and operationalize its research in a commercial context. It rapidly created the 10 research working groups needed for project purposes and participated in the establishment of demonstration and pilot plantations. It has published hundreds of pamphlets, papers and monographs to disseminate NAP-related research, which will make an important contribution to raising silvicultural productivity throughout China. Other Agencies 62. At the time of project approval, the MFO entered into an agreement with the Agricultural Bank of China (ABC). ABC was to monitor the progress of afforestation entities' work, disburse project funds and ensure that the beneficiaries maintain reliable accounts, in consideration of a service fee of 0.3 percent. During the project's first year, though, it became clear that the ABC local branches could not do this work effectively, and MFO decided that the afforestation entities would simply maintain ordinary accounts in ABC branches. Technical advice and oversight of the accounts was instead provided by the Provincial and county level offices of the State Audit Administration, which provided a professional and independent service during implementation. 63. MFO engaged the China Instruments Import/Export Company to handle the international procurement for the project. Despite some initial problems following the Bank's standard bidding documents, its overall performance was satisfactory and it has subsequently been prequalified to handle procurement under the FDPA. - 14- H. ASSESSMENT OF OUTCOME 64. The project is likely to exceed its physical objectives and meet or exceed its goals for technological improvement, as described above. Its re-estimated economic and financial rates of return exceed those estimated at appraisal; it also has large, though difficult to quantify, environmental and institutional benefits. The project is likely to have an enduring impact on the development of commercial forestry, as described above. Overall the project is judged as highly satisfactory. I. KEY LESSONS LEARNED 65. The borrower was in the driver's seat. The project was initiated by the highest level of government and continued to enjoy strong political support throughout implementation. It was therefore somewhat inoculated against the bureaucratic obstacles that afflict some other projects. Moreover, because marketing and pricing in the forest sector had been substantially liberalized at the time of preparation, the Bank did not need to use the project to advance sectoral reform. The borrower's priorities were the bedrock of the project, upon which the Bank's goals of technology and institutional modernization were built. 65. Where institutional capacity is robust, an investment project can be treated as a program or sector loan. NAP's massive geographic scope and widely dispersed project sites meant that the Bank could never directly supervise a large sample of the physical works. At appraisal and in early supervisions, it became clear that project management had created reliable monitoring and control systems. This good institutional capacity pennitted the project not only to be implemented successfully, but also to be expanded by 40 percent in mid-implementation. 67. A project with highly focused objectives can nonetheless generate a broad sector relationship. Although NAP's objectives were few and concrete, it served as a platform for the Bank and Chinese authorities to open up a dialogue on a wide range of forestry issues, including forest resource planning, natural forest management, wood products marketing and pricing, environmental management and poverty alleviation in remote areas. This dialogue has resulted in two follow-on projects. NAP's simplicity of objectives, far from narrowing the sector dialogue, actually widened it by establishing a successful relationship. 68. Despite China's rapid liberalization, decision-making and planning in the forestry sector still do not fully reflect market principles. The people managing the plantations need better tools -- and the freedom to use them -- for assessing market conditions to guide their harvesting and replanting decisions. This could increase the project's financial returns and thereby create more incentive for future financing in the sector. 69. The project achieved a high impact from research that had already been done, but did not address the broader constraints affecting future research. Although the original objectives of the research component were appropriate, the Bank could have leveraged the component's impact more effectively during supervision (as was done in the rest of the project). To do so, the - 15 - Bank could have perhaps spent resources on distinguished research consultants to help implement the recommendations of the project-financed International Advisory Panel. 70. The linkage offinancial control with technical standards was critical to project-success. If control of on-lending and disbursement had been in the hands of a purely financial institution, such as ABC, the technology transfer would have been significantly limited. -16- PART II: STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public sector management X Private sector development X B. Project Sustainability Likely Unlikely Uncertain x C. Bank Performance Highly Satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X Supervision X D. Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X Operation (if applicable) X E. Assessment of Outcome Highly Satisfactory Unsatisfactory Highly Satisfactory Unsatisfactory x - 17- TABLE 2: RELATED BANK LOANS/CREDITS Year of Loan/Credit Title Purpose Approval Status 1. Forestry Development Project (Cr. Support establishment of 118,000 FY85 Coleted 1605-CHA) hectares of new plantations, tending omple of 166,000 hectares of existing plantations in three provinces and plantation infrastructure, provincial forestry research institutes, county extension stations and several wood processing factories. 2. Daxinganling Forest Fire Salvage burned timber and establish a FY88 Completed Rehabilitation Project (Cr. 1918- comprehensive fire protection system CHA) in Northeast China 3. Forest Resource Development and Support dissemination of the NAP FY94 Under Protection Project (Cr. 2623-CHA) plantation program to another Implementation 620,000 hectares in 16 provinces and establishment of improved models for watershed management on 280,000 hectares of protection forests. 4. Nature Reserves Management Promote improved management of FY95 Under Project (GEF) biodiversity resources and natural Inplementation forests. 5. Changing Institutional Roles in the Strengthen institutional framework FY96 Completed Forestry Sector (IDF) for private sector investment, SFA's regulatory role, and public sector management of environmental forests 6. Forestry Development in Poor Develop forest resources in poor FY98 Board approved on Areas project areas of central and western China on a sustainable and participatory basis May 21, 1998 to support poverty reduction, forestry development and improved environmental management. - 18 - TABLE 3: PROJECT TIMETABLE Steps in project cycle Date planned Date actual Identification na 10/02/88 Preparation 03/89 03/19/89 Preappraisal 10/89 10/29/89 Appraisal 02/90 02/15/90 Negotiations 04/23/90 05/04/90 Board presentation 06/05/90 05/29/90 Signing 06/90 06/20/90 Effectiveness 08/90 09/24/90 Project completion 12/31/96 12/06/97 Loan closing 12/31/97 12/06/97 TABLE 4: LOAN/CREDIT DISBURSEMENT: CUMULATIVE ESTIMATE AND ACTUAL ($ million) FY91 FY92 FY93 FY94 FY95 FY96 FY97 Appraisal estimate 40.0 100.0 175.0 235.0 275.0 290.0 300.0 Actual/a 43.4 91.7 136.1 208.3 261.4 311.1 328.4 Actual as % of adjusted estimate 108.5 91.7 77.8 88.6 95.1 107.3 109.5 Date of final disbursement December 6, 1997 /a Higher actual disbursement in US dollar terms than appraisal estimate is due to depreciation of US dollar against SDR. - 19- TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION Estimated Estimated Key Implementation Indicators in SAR at Appraisal at ICR (------ - O ha.---- ) Plantation Area 985.0 1,385.0 Chinese Fir 341.8 538.4 Masson Pine 85.9 164.8 Slash Pine 71.8 214.3 Larch 176.0 96.5 Chinese White Poplar na 56.6 Black Locust na 21.6 Other Broadleaf Trees 36.2 72.7 Italian Poplar 191.4 117.5 Eucalyptus 59.5 89.0 Paulownia 20.0 13.7 Black Wattle 2.0 0.0 (- ---- '000 m3-----------) Total Output (volume) 136,869 233,915 Chinese Fir 54,786 101,589 Masson Pine 10,790 30,328 Slash Pine 9,166 41,559 Larch 25,659 14,907 Chinese White Poplar na 7,059 Black Locust na 1,466 Other Broadleaf Trees 9,628 9,076 Italian Poplar 17,991 19,167 Eucalyptus 5,943 6,851 Paulownia 2,795 1,913 Black Wattle 111 (-----------'000 ton----------) Fuelwood 25,032 19,052 Resin 266 443 (-------------'000 yuan---------) Total Output (value in 1990 constant prices) 50,612,824 71,633,456 Chinese Fir 26,343,047 38,940,963 Masson Pine 3,531,236 7,970,959 Slash Pine 2,978,903 10,515,674 Larch 8,210,893 3,585,258 Chinese White Poplar na 2,102,924 Other Broadleaf Trees 2,888,465 2,206,315 Italian Poplar 3,674,919 3,093,661 Eucalyptus 1,307,460 1.248,880 Paulownia 698,850 364,961 Black Wattle 24,323 Fuelwood 742,328 726,975 Resin 212,400 519,372 Incremental Employment During Implementation Period (person.year) 680,000 1,100,000 During Plantation Lifetime (person.year) Over 7,000,000 7,252,000 Training and Consultant Services Center, Provincial, County Training Courses (person/time) na 228,500 Farmer's On-spot Training (person/time) na 780,000 Consultant Services (person/day) na 4,348 - 20 - TABLE 6: KEY INDICATORS FOR PROJECT OPERATIONS (Not Applicable) TABLE 7: STUDIES INCLUDED IN PROJECT Study Purpose as defined at Status Impact of Study AppraisallRedefmed Forestry Resources To begin planning the Completed Strengthened Management Plan for each sustainable conservation and MFO's capabilities project province utilization of, and future and breath of investments in, forests of all expertise, and types. provided background information for preparation of follow-on project. TABLE 8A: PROJECT COSTS (Yuan million) Component Appraisal estimate Actual/latest estimate Local Foreign Total Local Foreign Total Afforestation 2,303.3 336.9 2640.2 3,302.0 395.4 3,697.4 Research and Pilot Plantations 38.5 10.7 49.2 46.7 22.9 69.6 Accelerated Planting Material Dev. 7.5 7.3 14.8 5.3 2.0 7.3 Information System 8.7 1.9 10.6 2.0 0.7 2.7 Total 2,358.0 356.8 2714.8 3,356.0 421.0 3,777.0 TABLE 8B: PROJECT COSTS ($ million) Component Appraisal estimate Actual/latest estimate Local Foreign Total Local Foreign Total Afforestation 422.8 63.1 485.9 490.1 58.7 548.8 Research and Pilot Plantations 7.0 2.0 9.0 6.7 3.3 10.0 Accelerated Planting Material Dev. 1.4 1.3 2.7 0.7 0.3 1.0 Information System 1.7 0.3 2.0 0.3 0.1 0.4 Total 432.9 66.7 499.6 497.8 62.4 560.2 -21 - TABLE 8c: PROJECT FINANCING ($ million) Source Appraisal estimate Actual/late estimate Local Foreign Total Local Foreign Total IDA 233.3 66.7 300.0 266.0 62.4 328.4 Provincial govermment 50.0 50.0 56.8 56.8 Prefecture/municipality government 15.0 15.0 12.0 12.0 County government 60.0 60.0 50.4 50.4 Afforestation entity 74.6 74.6 112.6 112.6 Total 432.9 66.7 499.6 497.8 62.4 560.2 TABLE 9: ECONOMIC COSTS AND BENEFITS Appraisal Estimate ICR Estimate Species FRR ERR NPV FRR ERR NPV (%/6) (N) (Y M) (%) (°/) (Y M) Chinese Fir (Site 18) 20.0 20.6 391.9 23.6 25.4 1,372.2 Chinese Fir (Site 16) 18.2 18.6 486.7 21.4 23.2 1,873.0 Chinese Fir (Site 14) 16.5 16.8 312.2 20.0 21.7 1,496.6 Masson Pine and Yunnan Pine (Site 18) 15.2 16.9 44.7 19.3 20.9 358.5 Masson Pine and Yunnan Pine (Site 16) 16.0 18.1 127.5 18.1 19.7 449.4 Exotic Pine (Site 18)/a 16.1 17.6 27.2 20.5 22.3 563.8 Exotic Pine (Site 16)/a 17.2 17.7 102.5 20.9 23.0 849.0 Larch 13.9 14.3 138.7 16.7 18.0 283.9 Broadleaf Trees/b 21.5 25.0 516.4 19.0 19.9 520.8 Italian Poplar (Site V) 26.1 24.5 180.0 29.1 29.5 411.5 Italian Poplar and Albezzia (Site II) 32.8 49.8 666.7 36.0 39.9 367.5 Eucalyptus/c 43.2 52.6 505.4 35.1 39.5 458.0 Paulownia 30.8 39.4 170.8 34.4 38.6 130.9 Black Wattle 30.4 39.7 7.2 Total Project 19.3 22.8 3,643.6 21.7 23.5 9,081.1 Note: /a Includes Slash, Loblolly and Caribbean Pine. /b Based on White Poplar at appraisal and White Poplar, Black Locust and Siberian Elm at ICR. /c Different Eucalyptus variety at appraisal and ICR. - 22 - TABLE 10: STATUS OF LEGAL COVENANTS Cove- Original Revised Agree- nant Present fulfillment fulfillment ment Section type Status date date Description of covenant Comments DCA 3.01 (b) 05 C Execute and maintain Project Implementation Agreement with each Province DCA 3.02 13 C Procurement in accordance with DCA Schedule 3. DCA 3.03 05 C Maintain central project office with adequate staffing and functions. DCA 3.04 06 CP Presticide procurement and use in MFO submitted a revised accordance with IDA guidelines. list of pesticides for use in project in March 1995 that was approved by the Bank in April 1995. Some farmers purchased small amounts of pesticides on their own. DCA 4.01 (b) 01 C 06/30 Submit audit reports within six annually months of year end. DCA Schedule 5 I(b) 12 C 06/30/91 Submit Forest Resource Management Plans for three provinces. DCA Schedule 5 1(c) 12 C 12/31/91 Submit Forest Resource Management Plans for all project provinces. DCA Schedule 5 2(a) 09 C 12/31 Submit annual work and annually financing plan by December 31 of each year. DCA Schedule 5 2(b) 09 C 03/31 and Submit semi-annual progress 09/30 reports on March 31 and annually September 30 of each year. DCA Schedule 5 3(a) 05 C Establish and maintain Central Research Groups within CAF. DCA Schedule 5 3(b) 12 C Carry out acceptable research programs. DCA Schedule 5 3(c) 09 C 12/31 Submit annual report on research annually program by December 31 of each year. DCA Schedule 5 4(a) 12 C Cany out acceptable program for production of planting materials. DCA Schedule 54(b) 09 C 12/31 Submit annual report on planting annually materials program by December 31 of each year. DCA Schedule 5 5 12 C 09130 Submit annual report on timber annually prices by September 30 of each year. DCA Schedule 5 6(a) 13 C 11/01/90 Submit plan for pilot plantations. DCA Schedule 5 6(b) 13 C 11/01/90 Submit plan for afforesting 330,000 hectares. Covenant Class: Status: I = Accounts/audits 8 = Indigenous people C = covenant complied with 2 = Financial performance/revenue 9 = Monitoring, review, and reporting CD = complied with after delay generation from beneficiaries 10 = Project implementation not CP = complied with partially 3 = Flow and utilization of project covered by categories 1-9 NC = not complied funds 11 = Sectoral or cross-sectoral 4 = Counterpart funding budgetary or other resources 5 = Management aspects of the allocation project or executing agency 12 = Sectoral or cross-sectoral policy! 6 = Environmental covenants regulatory/institutional action 7 = Involuntary resettlement 13 = Other - 23 - TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS The project complied with all applicable Bank policies, including OD 4.36 regarding Bank Group involvement in the forestry sector, as reviewed below. The project objectives fit into the overall sectoral objectives spelled out in OD to reduce deforestation, enhance the environmental contribution of forests, promote afforestation, and encourage economic development. The policy framework in China satisfies the required conditions for government commitment for sustainable management and conservation-oriented forestry set out in the OD. The project supported no harvesting, resettlement, or environmentally damaging activities. TABLE 12: BANK RESOURCES: STAFF INPUTS Stage of Planned Revised Actual /a Project Cycle Weeks $'000 Weeks $'000 Weeks $'000 Preparation to Appraisal na na na na 187.6 496.5 Appraisal na na na na 15.6 37.9 Negotiations through Board Approval na na na na 6.2 18.5 Supervision na na na na 122.4 770.2 Completion na na na na 17.0 27.5 TOTAL na na na na 348.8 1,350.6 /a Including inputs of both Bank staff and consultants. - 24 - TABLE 13: BANK RESOURCES: MISSIONS Performance rating Specialized staff Imple- Devel- Stage of project cycle Month/ Number of Days skills represented /a mentation opment Type of year persons in field status /b objectives problems Ic Identification 10/88 5 24 EC/FS(2)/MS/ IDS Preparation 03/89 7 27 EC/FS(2)/IDS/SC/ MIS/RS Preappraisal 10/89 10 22 EC/FS(4)/ECO/SN S/IDS/MS/SCS Appraisal 02/90 4 14 EC/FS(2)/ECO Negotiation 05/90 5 EC/FS/LW/DS Board approval 05/90 Signing 06/90 Effective 09/90 Supervision 1 11/90 4 17 EC/FS(2)/ECO I 1 El Supervision 2 04/91 2 8 EC/ECO I I Supervision 3 07/91 4 22 ECO/EC/FS(3) I I Supervision 4 04/92 7 31 EC(2)/FS(4)/ECO I I PM Supervision 5 12/92 4 20 EC/ECO/FS(2) 1 I PM/El Supervision 6 12/93 3 24 EC/FS(2) I I PM/El Supervision 7 08/94 3 10 EC/ECO/FS HS HS PLP/ER Supervision 8 08/95 4 EC/ECO/FS/IDS HS HS SM/ER Supervision 9 06/96 3 EC/ECO/FS HS HS SM/ER Supervision 10 05/97 4 7 EC/ECO/FS/IDS HS HS Completion 05/98 4 18 EC/FA/FS/RS HS HS /a DS: Disbursement Specialist; EC: Economist; ECO: Ecologist; FA: Financial Analyst; FS: Forest Specialist; IDS: Institutional Development Specialist; LW: Lawyer; MIS: Information Specialist; MS: Marketing Specialist; RS: Research Specialist; SC: Silviculturist; SCS: Soil Conservation Specialist; SNS: Seed Nursery Specialist. /b 1: Highly satisfactory; 2: Satisfactory; S: Satisfactory; /c El: Enviromental Issues; ER: Extension of New Research Findings; PLP: Plantation Program; PM: Planting Material; SM: Stand Management; -25 - ANNEX A: BORROWERS CONTRIBUTION TO THE ICR National Afforestation Project Implementation Completion Report Prepared by: World Bank Loan Project Management Center, State Forestry Administration, China May, 1998 - 26 - ACRONYMS AND ABBREVIATIONS AFIPD Academy of Forestry Inventory, Planning and Design CAF Chinese Academy of Forestry Sciences CRG central research group DCA Development Credit Agreement DFRFP Department of Forestry Resources and Forestry Policy DST Department of Science and Technology DWFPC Department of Wildlife and Forest Plants Conservation FGHY fast growing and high yielding plantation EP environmental protection EPG environmental protection guidelines FIRR financial internal return rate FRDPP Forest Resource Development and Protection Project GASS&SFF General Administration of Tree Seeds, Seedlings and State Forest Farm IBRD International Bank of Reconstruction and Development ICB international competitive bidding IDA International Development Association LICB limited international competitive bidding MFO Ministry of Forestry (prior to the 1998 institutional restructuring) MOF Ministry of Finance NAP National Afforestaion Project NCB national competitive bidding P & A provinces and autonomous regions PMO provincial project management office P.D person day PMC World Bank Loan Project Management Center of MFO PMO provincial project management office P.M person month P.T person time SDR special drawing right SPC State Planning Commission (prior to the 1998 institutional restructuring) RMB Renminbi yuan SSPCG Seed and Seedling Production Cooperation Group TEG technical extension group WB World Bank Yr. Year - 27 - CHINA NATIONAL AFFORESTAION PROJECT Contents Part Project Introduction 1.1 Background 1.2 Project Preparation 1.3 Project Area Distribution, Targets and Components 1.4 Project Implementation Results 2 Project Implementation 2.1 Implementation of the Plantation Establishment Component 2.2 Implementation of the Planting Stock Development Component 2.3 Implementation of the Technical Extension Component 2.4 Environmental Management and Monitoring 2.5 Procurement 2.6 Training and Technical Assistance 2.7 Adjustment of Project Planning 2.8 Use of Project Funds 3 Project Achievements 3.1 Economic Results 3.2 Environmental Impact 3.3 Social Impact 3.4 Technological Progress 3.5 Contributions to Chinese Forestry Reform and Development 4 Major Experience and Lessons 4.1 Substantial Support from All Government Levels and Active Local Participation Are Preconditions of Smooth Project Implementation 4.2 Organization and Implementation in Line With Socialist Market Economy is the Primary Motivation of Successful Project Implementation 4.3 Improved Management System, Scientific and Strict Managerial Measures are Primary Assurances of Smooth Project Implementation 4.4 Added Technological Input and Enhanced Technological Content Are Important Measures for Raising Plantation Productivity 4.5 Enhancement of Planting Stock Development is the Key Measure to Establish High Quality Plantations - 28 - 4.6 Enhancement of the Management and Supervision of Fund Use is Economic Lever to Ensure Effective Project Implementation 4.7 Major Lessons 5 Involvement of the World Bank 5.1 Highly Efficient, Responsible Management 5.2 Rigorous Supervision and Monitoring 5.3 Elaborate Guidance and Conscientious Assistance 5.4 Flexible and Pragmatic Cooperation 6 Post-project Operational Plan 6.1 General Requirement 6.2 Objectives and Tasks 6.3 Methodology and Measures Additional Background Papers Available in Project Files: I Implementation Report of Research and Extension Program of NAP 2 Comparative Analysis of NAP Plantations vs. Ordinary Commercial Plantations in China 3 Fund Use and Benefit Analysis of NAP - 29 - Executive Summary Project Name: National Afforestation Project financed by World Bank. Borrower: Borrowers of the project are classified into four levels. The first level is the Ministry of Forestry (MFO) of the People's Republic of China; The second level includes the sixteen provinces and autonomous regions of Hebei, Liaoning, Zhejiang, Anhui, Fujian, Jiangxi, Shandong, Henan, Hubei, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou and Yunnan; The third level are the 316 counties and cities of the above 16 provinces and autonomous regions; The fourth level are the 13,000 afforestation entities of the above 316 counties and cities. Investment: The total planned investment of the project is 500 million US dollars (equivalent to 2,714 million RMB yuan in 1990), of which the credit from the World Bank is 300 million US dollars (equivalent to 230 million SDR when signing DCA). The actual fulfilled investment is 557 million US dollars (equivalent to 3,763 million RMB yuan), of which the World Bank credit is 328 million US dollars (equivalent to 230 million SDR). On-lending conditions: The onlending conditions from MOF to MFO include a maturity of 20 years, grace period of 8 years, interest rate of 4.0% for direct foreign currency onlending and 6.0% for RMB onlending. With the same interest rate but different mature periods and grace periods on species/rotation basis, MFO onlents to 16 P & A. Accounts will be kept in RMB for the onlending conditions borne by the final beneficiaries, with interest rate no higher than 6.0% and the same maturity and grace periods as those for the onlending from MFO to P & A. Project period: 7 years: August 1990 -- December 1997. Project objectives: To establish in the state owned forest farms and collective farms of the 16 P & A, 985,000 ha. of intensively managed plantation (IMP) of Chinese fir, Masson pine, Exotic pines, Eucalyptus, Poplar, Larch etc. for production of construction timber, pulpwood, woodbased panels and pitprops. In the meantime, research and extension, planting stock development, environmental monitoring, forest resource management will be enhanced under the project. Fulfillment of the objectives: Site inspection and checking during the project implementation period indicated that the satisfactory acreage of the established plantations came up to 1,385,000 ha; and planned tasks of research and extension, planting stock development, environmental monitoring as well as the forest resources management were all accomplished. Main achievements: Achievements of the project are multiple and mainly include: (1) establishment of 1,385,000 ha of high standard IMP plus the radiating effect to the general afforestation of the country have - 30 - played a significant role in realizing the Government's strategic targets of 100 million Mu (about 6,670,000 ha.) fast-growing and high-yielding (FGHY) plantation base construction from the middle of 1 980s to the end of the century; (2) The project helped the plantation development of China in realizing the dual fundamental transfers from emphasis on quantity and extensive management to those on efficiency and intensive management; (3) The project identified a complete set of feasible models and methods for China's plantation development drive; (4) The project proved that development of commercial plantations with international financing bodies is an investment of high benefit and small risk. Benefits: At the harvest, the timber yield of the project will come to 211 million cubic meters, fuel wood 21,390,000 ton, total output value 100.15 billion yuan. After deducting cost and taxes, the total profit will be about 73.96 billion yuan and the FIRR after tax will be 15.2%. Implementation of the project strengthened institutional capacity building, enhanced the managerial capacity of the forest sector in IMP establishment, evaluation, finance and monitoring; Implementation of the project added 2 to 3 percentage points of forest coverage to the project area and reduced soil and water losses and the pressure of natural forest harvesting; The project created employment opportunities of 195 million person days (p-d) to the project area. - 31 - Part I Project Introduction 1.1 Background 1.1.1 China is a country inadequate of forest resources. The long time over-harvesting has resulted in severe forest resource crises since 1980s characterized by the decrease of harvestable resources, accelerated natural forest consumption and outstanding imbalance between timber supply and demand. In 1990, the forest coverage of the country was 12.98% while the counterpart figure of the world was 32.3%; the standing volume of the year was 9.141 billion cubic meters with the volume per person of 8.4 cubic meters that represented about one-ninth of the world average; the annual timber output was about 140,000,000 cubic meters with the shortage over 10 million cubic meters. Market forecast in 1990 indicated that by year 2000, the conflict between timber supply and demand would be even more severe ---- the gap between supply and demand of timber (fuel wood excluded) would be 33 to 43 million cubic meters, of which the gaps of construction timber, pulpwood, and woodbased panels will be more obvious. Additional timber harvesting will be limited by the insufficient forest resources and added import of the timber will consume a great deal of foreign currency reserve of the country. Therefore, only by the establishment of intensively managed plantations (IMP) in the country and sped up cultivation of forest resources can effectively solve the timber shortage problem. 1.1.2 China has a long history of cultivation of tree plantations but short developing IMP. It have been proved by the practice of the developed countries that, to establish high standard plantations by small amount of land and intensive management for a great deal of timber to meet the needs of national economy growth while rehabilitating most natural forest and protecting ecological environment is the general tendency of the modern forestry development, and it is also the primary solution for China to deal with the forest resource crises and alleviate the conflict between timber supply and demand. When formulating the long term forestry development plan of the country, China drew on the experience of forestry developed countries and listed the development of IMP as one of the significant strategic measures of the country. In early 1980s, the Government proposed that by year 2000, a total acreage of 100 million Mu IMP would be established in the country, and the State Council, State Planning Commission (SPC) formally approved the proposal in 1987. To expedite up realization of the target, Chinese Government put forward to the World Bank (WB) the concept of "National Afforestaion Project (NAP) ". 1.2 Project Preparation 1.2.1 Project proposal and identification Chinese Government put high emphasis on the WB financed IMP establishment. The State Council issued in June 1988 a document approving the "The Proposal of Developing IMP by Use of WB Loan", followed by the document of SPC approving the project proposal by Ministry of Forestry (MFO) of implementing the first phase of the 100 million Mu IMP plantations in march 1989. By these measures, NAP completed its identification process by the Government. WB demonstrated active and supportive attitude towards the IMP development of the Govemment and held that NAP were significant to both Chinese forestry development and improvement of the global ecological environment. In October 1988, WB sent a five-member project identification mission headed by Mr. Horst Wagner to China. After discussion with relevant institutes and agencies and site studies to - 32 - Guangdong Province and Hunan Province, WB rectified the project and agreed that the project might enter the preparation process. 1.2.2 Feasibility study and Evaluation In accordance with the agreements made during the project identification, the World bank Loan Project management Center(PMC), and the Academy of Forest Inventory, Planning and Design along with other institutes, carried out by stages the project preparation and feasibility study. By completion of ten sets of documents on specific topics, NAP feasibility study was finalized in July 1990. WB contributed effective support to preparation of the project. In March 1989, WB sent a project preparation mission to China composed of Mr. Wagner and other four members, followed by the 8- person NAP preparation consultancy panel headed by Mr. Bertil Hedlund in August 1989. Based on achievements and findings of the above two groups, WB conducted the pre-appraisal of the project in November 1989, and the appraisal in February 1990. 1.2.3 Project negotiation and signing of the Development Credit Agreement (DCA) In April 1990, Chinese Government held a negotiation with WB in Washington D. C. and relevant agreements were made. On May 29, 1990, Board of Directors of WB approved National Afforestation Project. Consequently, the representative of Chinese Government and the WB representative signed the DCA on June 20, 1990. 1.2.4 Onlending agreement signing and effectiveness of DCA Following the signing of DCA, preparation for the effectiveness of DCA was carried out promptly. In June 1990, Ministry of Finance (MOF) and MFO signed the onlending agreement; On July 14, 1990, chaired by the then Vice Premier Tian Jiyun of the State Council, the Minister of MFO signed the onlending agreement with the representatives of the 16 project provinces and autonomous regions (P&A) that signed with their counties and the counties with the afforestation entities soon afterwards. The DCA became effective on August 20, 1990, then the project preparation in accordance with requirement of WB was put to an end, and the project entered the implementation period. 1.3 Project area distribution, targets and components 1.3.1 The project areas are mainly located in eastern and southern parts of China that are suitable for the development of IMP. The project areas are geographically classified into five regions: * Southern China Region, including Hainan and southern parts of Guangdong and Guangxi, that are focused on plantations of Eucalyptus and Caribbean pine etc.; * Lower Yangtze River Reaches Region, including the six provinces of Hunan, Hubei, Jiangxi, Anhui, Zhejiang and Fujian and northern parts of Guangdong and Guangxi that are focused on the plantations of Chinese fir, Masson pine, Exotic pines and Broadleaved species; * Southwestern China Region, including the three provinces of Sichuan, Guizhou and Yunnan that are focused on the species of Chinese fir, Masson pine and some indigenous trees; * North Central Plain Region, including the three provinces of Hebei, Henan, and Shandong that are focused on the species of Poplar, Paulownia, Black locust and White elm; * Eastern Liaoning Region, including Liaoning province focused on Larch and Poplar. - 33 - 1.3.2 The project is aimed at expanding the forest resources, increasing timber yield, reducing the gap between timber production and consumption. Centered around this aim, the project contains the following targets: * To improve the quality of the forest plantations through the use of superior planting stock by better seed selection and expanding clonal production, and to increase the productivity of timber forest by the application of advanced planting and management techniques; * To adopt standard financial and economic analytical methods for forest investment to make use of the fund more effectively; * To strengthen the research and extension work with the focus on genetic improvement of tree species to support the planting program; * To carry out an accelerated planting stock development program to increase the productivity of planting stock; * To strengthen the institutional capacity building to meet the need of project implementation and management. 1.3.3 The project is composed of the following six parts 3 Plantation establishment. An acreage of 985,000 ha of IMP will be established in the 16 P & A; * Research and extension. The Research and Extension Program is formulated with the emphasis on genetic improvement, fertilization, mycoriza inoculation on planting stocks, wood property testing etc.; 3 Improvement of planting materials. The high quality planting stock development would be accelerated, the clonal stock use would be expanded and the hybridization plan would be executed; * Organization and management. Institutions with targeted responsibilities would be established; 3 Environmental management. The Environmental Protection Guidelines should be prepared and executed; - Forestry sector planning. Each province should prepare a Forest Resources Management Plan. 1.4 Project implementation results From the second half of 1990 when the project was launched to the end of the project implementation in 1997, project activities had been carried out in a orderly and smooth manner in the designated areas in accordance with the DCA, SAR, onlending agreements of all levels, and the agreed guidelines and regulations of the project. As a result, the six components of the project were all completed and the targets accomplished. - 34 - Part II Project Implementation 2.1 Implementation of the plantation establishment component 2.1.1 The planting plans Planting activities of the project started in the second half of 1990 and ended in 1995, and inspection and acceptance indicated that the satisfactory acreage of established plantation is 1,385,000 ha., which is 140.7% of the designated target of 985,000 ha in DCA. Apart from the species of Larch, Paulownia, and Black locust (White elm included), all the planting targets of species were overfufilled. Fulfilled Planting Acreage by Species, NAP (Unit: ha.) Year Total 1991 1992 1993 1994 1995 Species Actual % of Actual Actual Actual Actual Actual completed Planned completed completed completed completed completed Total 1384987.4 140.72 239066.04 365644.39 311151.01 276704.94 174150.59 Chinese fir 519633.55 151.67 104197.53 144124.22 113918.26 97089.26 60304.28 Masson's pine 146104.86 203.21 24663.99 40272.54 38027.87 29252.13 13888.33 Slash/Loblolly Pine 214267.36 301.79 35889.89 54934.74 48676.62 49282.28 25483.83 Larch 96546.7 54.86 11341.68 24390.74 22740.66 22220.17 15853.45 Other pines 18183.46 129.88 1376.19 3271.53 1772.49 5188.68 6574.57 Italian Poplar/Chinese 164146.01 101.01 23720.45 43074.53 31456.99 26981.23 20641.38 White Poplar Eucalyptus 88972.19 148.53 16401.35 22510.88 22829.05 19089.93 8141.98 Paulownia 13706.81 68.53 3916.1 6573.6 2847.21 369.9 0 Black locust/Elm 21559.78 93.74 3538 5542.78 2263.1 3844.7 6371.2 Other boardleaved trees 101866.68 511.89 14020.86 20948.83 26618.76 23386.66 16891.57 There are two reasons for the overfulfiliment of the planned targets by 40.7%. One is the increase of the exchange rate between US dollars and Renminbi Yuan from 1: 4.7 to 1: 8.3, which means an increase of the originally planned fund for planting; Secondly, in accordance with the agreement of the WB, the contingencies in Category 4 was reallocated to Category 2 to finance more plantation establishment. Although targets of most planting species were overfufilled, those of a few species were not fulfilled. The reason is that expansion of the planting acreage due to the change of the exchange rate was not proportionate among the planting species, but based on the actual situation of the timber market and the choice, intention of the planting entities. In the meanwhile, when the annual planting plans were finalized, some adjustments were usually made on basis of the above two factors. There is a special reason for Larch. The original actual planned acreage for Larch plantation was 50,000 ha., but we put an acreage of 1,260,000 ha. for undetermined species into the category of Larch during the project appraisal stage, which made the planting target of Larch 2.5 times more than that of the actual planned. If the planned acreage for undetermined species is omitted from Larch category, the planted acreage of Larch would also exceed the target. - 35 - Comparison of the planting species: planned vs. fulfilled (Unit: 0000' ha.) 60. 6C50 | * Planned area 40 3 Complete area 20 _ A B C D E F G H I J A: Chinese fir; B: Masson's pine; C: Slash/Loblolly Pine; D: Larch; E: Other pines F: Poplar; G: Eucalyptus; H: Paulownia; I: Black locust; J: Board leave tree 2.1.2 Tending of the young growth In accordance with the afforestation model, the total young growth tending of the project should be 6,618,627 ha.- times., and the completed tending came to 5,884,726 ha.- times representing 89% of the target. The unfufillment of the target is resulted from generally adopted improved planting technology that helped the young growth surpass the designed standards of the afforestation models --- the targeted tending stands had the tree crowns closed one year earlier than the closure timing specified in the model. To this end, the years and times of the young growth tending under the project was reduced. For instance, for Chinese fir, the originally designed "2-2-2-1 (7 times of tending in 4 years)" was adjusted as "2-2- 1 - 1"; and for the Slash pine, from "1-1-1-1" to "1-1-1". 2.1.3 The main subsidiary facilities * The guard/storage shed Construction of the sheds got inserted in the middle term of the project in the light of the agreement of WB and the need of post-planting management. Construction of the shed is based on planting acreage: one shed for every 250 ha., and 5,500 sheds would be built for the project and the actually constructed sheds came to 3,730 ones: 829 ones in 1994, 2,332 ones in 1995 and 569 ones in 1996. * Forest road (operational road) In line with the project design, forest road of 3 meters should be built for each ha. of plantation, and 4,155 kilometers forest road should be constructed and the completed came to 7,340 kilometers, representing 177% of the plan. The average density of the newly constructed forest road is 5.3 meters per ha. * Firebreak General required but not quantified firebreak construction was raised at the project design stage. In course of the project implementation, 49,740 kilometers of firebreak were built to meet the need of forest fire prevention purpose. 2.2 Implementation of planting stock development component -36 - 2.2.1 The planting material development program In order to improve the quality of the planting materials, enlarge the scale and quicken the pace of superior seed production to meet the project planting needs, the Accelerated Planting Material Development Program was prepared with assistance of the WB. This program had been proposed by Mr. Norman Jones, the world famous tree breeding specialist, for which it was named "Jones Plan". Through the implementation for three years from 1991 to 1994, the plan was fully accomplished and the main completion indicators are as follows: * Improvement of the seed production bases 246.7 ha of seed stands of Masson pine, Larch, and Exotic pines was improved or established, making up 107.3% of the target of 230 ha. By completion of the plan, 15% seed production capacity was increased and more importantly, the quality of the seed was improved. * Propagation of the clonal materials was extended 244 Chinese fir clones and 336 Eucalyptus clones were selected for the establishment of 141.15 ha of clonal multiplication nurseries (including scion plucking nursery and cutting nursery), constituting 201.6% of the original plan of 70 ha., by which about 30 million clonal stock production capacity was added. * Hybridization program 400 hybridized combinations of Masson pine were completed, of which 300 were used for planting purpose; 1,300 hybridized combinations of Eucalyptus were completed and 4 ha. of hybrid progeny test stand was established; 4 hybridized combinations of Larch were completed by which some seed was obtained and about 2,000 hybrid seedlings propagated. 2.2.2 Planting stock production In accordance with the actual planting acreage, the afforestation model for each species and the requirement of using only Grade I seedlings for planting purpose, a total of 3.76 billion Grade I seedling was needed. The actual Grade I seedling production was 3.97 billion representing 106% of the target. Of the 3.97 billion seedlings, the quantity of the containerized stock made up 22% and clonal stock 8.5%, which were both higher than the designated targets at the project appraisal stage (see the following the table). Refer to attached Table 2 for the specifics of each province. - 37 - Seeds for Seedling-Raising and Class I Seedling Production by Species Item Output of Class I Seedlings Seed Used Scion (million trees) (ton) Used Species I Total Clonal Bare- Containerized Total A. B. C. D. (million Output stock rooted Seedlings cuttings) of among Seedling Seedling the total Total Root- Number trainer I__ _ __ __ Seedling I Chinese 1796.3 107.6 1796.3 0 0 152.84 107.5 36.44 8.9 0 110.5 Fir Masson 568.5 0 324.9 243.6 6.2 53.89 6.29 24.32 23.28 0 0 Pine _ Exotic 544.2 0 259.6 284.6 8.3 51.47 25.67 15.15 0 10.65 0 Pine I _I_I_I Larch 420.7 0 414.8 5.9 0 39.21 15.23 18.39 5.59 0 0 Other 52.1 0 17.5 34.6 1.1 7.78 0.67 0.09 6.49 0.53 0 Pines _ Chinese 84.1 84.1 84.1 0 0 0 0 0 0 0 86.4 White Poplar Eucalyptus 316 84.7 30 286 21.2 1.1 0.19 0.4 0.07 3.54 106.2 Paulownia 10.6 9.6 10.6 0 0 0 0 0 0 0 9.8 Black 41.6 20.4 41.6 0 0 22.35 0.64 8.1 13.61 0 22.3 Locust/Elm Broad-leaved 137.4 32.1 127.1 10.3 0 12.76 0.81 10.43 1.52 0 33 trees Total 3971.5 338.5 3106.5 865 36.8 341.4 157 113.32 59.46 14.72 368.2 Note: A. : Seed orchard; B.: Seed stand; C. : Improved Provenance; D. : Imported seed 2.3 Implementation of the technical extension component 2.3.1 Research plan In line with the targets, research subjects and implementation plan of"NAP research Program", research and extension activities were carried out aggressively and the plan was well completed. From 1991 to 1992, a series of research and experiment bases including 540.1 ha of trial plantation, 277.6 ha of pilot plantation, and 567.9 ha of demonstration plantation were established in the 16 P &A, through which 33 research achievements have been verified. Of the 33 achievements, 15 were made by the Central Research Group (CRG) and 18 by the Provincial Research Group (PRG). In the meantime, some phasic achievements have been obtained and 260 research papers have been published. Refer to Appendix I. - 38 - 2.3.2 Extension of the research achievements First, at the beginning of the project, 33 achievements were selected from the 100 achievements of the National Forestry Key Research of the sixth and the seventh Five-year Plans and extended to the project operational activities. The coverage of the extension came to 100% in terms of project geographical distribution and 50-100% in terms of the planting acreage. Secondly, the 33 research results, and 20 phasic achievements and practical techniques from the Project Research Plan were disseminated, which improved the quality and efficiency of plantation establishment of the project. Case 1: Guangxi Research Achievements In Guangxi, 10 research achievements that are suitable for the project plantation development were selected from 33 research achievements and extended covering over 75% of the project area with satisfactory results. Extension target Area(ha.) Coverage Results 1. Chinese fir 28642 100% Height/diameter superior provenance of 5-yr growth added 45/41%, 2. Eucalyptus fertilization 15000 99% Volume add 52% 3. ABT powder (Chinese fir, Eucaly.) 33467 76.5% Add 3 percentage points to to survival rate 4. Containerized seedling (Slash pine) 35826 85% Add 3-5 percentage points to survival rate 2.4 Environmental management and monitoring 2.4.1 To minimize the diverse impact of the project activities on environment, Environmental Protection Guidelines (EPG) was formulated aimed at reducing soil and water losses, minimizing insect and disease outbreaks and conserving biodiversity. EPG stipulates principles and measures including selection criteria of wasteland for plantation that should have the crown closure under 0.3, strictly controlling site preparation by burning and overall site preparation, planting along the contour line, planting hole distribution in triangle form, establishment of soil and water conservation belt, conservation of original vegetation. EPG was effectively followed during project implementation with satisfactory results. The implantation and satisfactory rates of EPG reached over 90%. 2.4.2 In order to monitor the actual impact of project activities on environment and to improve the planting measures, 104 fixed sample sites for monitoring soil and water losses, soil fertility and pest and disease occurrence etc. were established. Consecutive monitoring of six years indicated that slight erosion occurred in 84% of the project planting sites, intermediate erosion occurred in 11% of the planting sites. Compared with the traditional planting mode, soil and water losses were reduced by over 10%. Refer to the NAP Environmental Monitoring Evaluation Report submitted by MFO to WB in May 1997 for details. -39 - Case 2. The comparison of soil, water and fertilizing losses between project planting and traditional planting of Chinese fir, during the first 5 years in Fujian Province 1500 *ts^iWu.i,i 3-EtfiS '0l!lllldtl00t!0i3221l ^1illl _Proj ect 1000 OTraditional 500M planting i 0 A B C D (O.lT/ha) (10m3/ha) (kg/ha) (kg/ha) A: Erosion modulus; B: Water losses; C: Loss of nutrient; D: Loss of organic matter 2.5 Procurement 2.5.1 During project implementation, 191,000 tons of fertilizer, 77 tons of pesticides, 424 sets of transportation vehicles, 14,700 kg. of superior tree seeds, 18 sets of planting stock propagation equipment, 87 sets of microcomputers, and 138 sets of office equipment were procured by the stipulated modes of ICB, LICB and Shopping. These materials and equipment, after the inspection of the commercial sectors, were distributed to afforestation entities through PMOs for project purposes. So far, the procured materials and equipment have been well used or are in good operational condition, and the expected results have been realized. For example, the procured 191,000 tons of fertilizer ensured the good growth of 600,000 ha. young plantations, increasing their early growth by 10-15%. 2.5.2 In course of procurement, all the linkages from the preparation of the bidding documents, tenders opening and evaluation, and contact signing were all carried out in strict accordance with the stipulated procurement procedures of WB. In particular, when conducting the tender document evaluation, the technical and economic indexes of the bidders were evaluated in line with the stipulations of the Procurement Guidelines of WB to guarantee the justness and fairness of project bidding as well as the quality and quantity of the procured goods, which was well accepted by both the commodity end users and the bidders. 2.6 Training and Technical Assistance 2.6.1 Domestic training During project implementation, widespread formal training level to level from ministry down to province and county was carried out to the project technical and managerial staff. Cumulatively, 3,812 training courses of 228,500 person times (p.t)regarding seed and seedling production, EP, planting techniques, financial management and information system etc were conducted, of which 27 courses of 1,332 p.t were at the ministerial level, 401 courses of 12,127 p.t at the provincial level, and 3,384 courses of 215,000 p.t - 40 - at the county level. In the meantime, 150,000 site training courses were conducted and the trainees came to 780,000 p.t. * Centre level * Provincial level o County level 2.6.2 Overseas study tour and training To learn the advanced cultivation and management experiences in plantation development of foreign countries, 35 study tours of 166 p.t or 2,656 person day (p.d) were sent to 17 foreign countries including Brazil, Chile, Finland, Sweden, Italy, France, UK, USA, Canada, Japan, Korea for studies and visits on tree genetic improvement, nursery management, plantation cultivation, IMP management, pest and disease prevention, environmental monitoring and management, financial management and economic analysis. In the meanwhile, 51 persons of 231.5 person month (p.m) were sent to the Agriculture center of Louisiana state University, Boise Cascade, Yale University, Willamete Industry Ltd. of United States for systematic study of project management, financial and economic analysis and information system. After the training, the trainees have acquired the current development of IMP in other countries and the relevant techniques, and improved their ability to use English language, which has promoted the implementation of the project. 2.6.3 Technical assistance To guarantee the application of advanced technical and managerial measures in project implementation, 10 p.t of international consultants of tree genetic improvement, fertilization, research and extension were recruited for services of 144 p.d. In addition, 662 p.t of 4,204 p.d of domestic experts and CRG experts were organized to offer consultancy and training to the project. 2.7 Adjustment of project planning Taking into consideration of the project implementation progress, the feasibility of the realization of project targets, availability of project funds as well as changes of the domestic prices, two adjustments were made in course of project implementation to the planting plans, funds between credit categories, and the unit prices. 2.7.1 Planting plan After the two adjustments in April 1993 and July 1994, the total planting acreage was increased from 985,000 ha to 1,355,000 ha. with an added acreage of 370,000 ha. - 41 - 2.7.2 Credit category After the two adjustments in April 1993 and July 1994, the composition of the credit is as follows (Unit: 1000 SDR): Item CD'. dated 1990 First Reallocation Second Reallocation Category Amount Disbursement Increased/ Amount Disbursement Increased/ Amount Disbursement ratio reduced ratio reduced ratio Total 230000 0 230000 0 230000 1. Material & 40000 100% -1800 38200 100% -5000 33200 100% Equipment 2. Plantation 165500 52% 24800 190300 58% 5000 195300 58% Establishment 3. Study 1500 100% 0 1500 100% 0 1500 100% Training 4. Contingency 23000 -23000 0 0 0 Note: 1. Credit Agreement signed in 1990 It is proved that adjustments to project planning at appropriate time and to appropriate degree can leads to full and more effective use of project fund to ensure the realization of the project objectives and expected benefits. 2.8 Use of project funds (see Annex 3 for details) 2.8.1 By December 31, 1997 when the project account was closed, the fulfilled investment of the project is 3.763 billion yuan, 138.6% percent of the estimated cost of 2.714 billion yuan at the project appraisal. Of the 3.763 billion yuan, the credit fund is USD328 million, equivalent to 2.218 billion yuan representing 58.9% of the total project investment, and the counterpart fund at all levels is 1.545 billion yuan representing 41.1% of the total investment. The investment by category is as follows (Unitl OOOCNY): Year Total 1991 1992 1993 1994 1995 1996 1997 Category ____ ____ I.Plantation 3446975 407982 639468 652909 710995 665921 328736 40964 establishment 2.Equipment 46730 577 26982 2402 7180 3532 4192 1865 3.Research & 8369 1799 2249 1973 2829 2341 1629 -4452 Extension 4.Planting 1590 596 626 169 147 -6 18 40 stock 5.Information 3513 428 1116 815 484 331 194 144 System I__ 6. Technical 16058 884 1056 1235 2272 3613 1921 5077 Assistance 7. Others 239854 13419 15150 17715 19339 49767 95094 29370 Total 3763089 425686 686646 677218 743246 725500 431785 73009 - 42 - 2.8.2 Of the USD328 million credit, the expenditure for plantation establishment (Category II) is USD279 million making up 85.06% of the Category total credit; the expenditure for procurement 111 (Category I) is USD46.7 million making up 14.24% of the total credit; the expenditure for TA, Category I study tours and training (including the domestic training, Category III) is USD2.3 million making Category up 0.70% of the total credit. I \ 2.8.3 Of the counterpart fund of 1.5445 billion yuan, 354.3 million yuan is from the provincial level making up 9.42% of the total actual investment, 81.64 million yuan from the prefecture (city) level making up 2.17% of the total actual investment, 343.1 million yuan from the county level making up 9.12% of the total actual investment, 765.5 million yuan from the afforestation entities making up 20.36% (including 297 million yuan or 7.9% of total project cost of labor contribution) of the total actual investment. - 43 - Part III Project Achievements With the introduction of advanced silvicultural techniques and management methods of the world, implementation of the project has been ensured, from the very beginning of the project, to approach the agreed objectives of the project and great improvements were made in economic, environmental, social and technical aspects. And with the passage of time, these achievements will become even more obvious. 3.1 Economic results 3.1.1 Based on the current growth tendency and as a whole, it is fully possible that the targeted total standing volume of 1.385 million ha. IMP of the project at final harvesting be realized. Calculated by the designed increment of the afforestation models, it would be produced, in succession during the whole project period, 211 million m3 of timber, 21.39 million tons of fuel wood as well as some forest sideline products, with the total output value of 100.15 billion yuan. Based on the results of static economic analysis, the total profits would be 73.96 billion yuan with the profit rate of funding of 278.9%. Meanwhile, the results of the dynamic analysis of economic benefits shows that the net financial present value after tax would be 4.603 billion yuan with a corresponding IRR of 15.2%. See Annex 3 for details. Case 3: Anhui Based on the projections in " A Study of the Property Assessment of the Project Plantation of Anhui Province "by the Anhui provincial forestry experts in accordance with th performance projection formula: i3/4Y = A ( -e-kX )Blj,and the results of simulated analysi of the data from a number of sample plot surveys, the average standing volume per ha of th project plantation of the province at final cutting, would be 263m3 for 20-year Chinese fir 202m3 for 18-year Slash pine and 175m3 for 20-year Masson pine, 137%, 109% and 97% respectively of the growth standards promulgated by MFO, and the corresponding financia IRRs were 17%, 15.3% and 14% respectively. Financial analysis indicated remarkable economic benefits of the project. It provided strong evidence that development of IMP with WB loan is a high profitability, low risk investment. 3.1.2 With the reasonable mixture of tree species of short rotation of 7-10 years ( i.e. Eucalyptus, Italian poplar and Paulownia), medium rotation of 15-18 years ( i.e. White poplar and fiber wood of Pines) and long rotation period of 20 years ( i.e. Chinese fir and Larch), 1.2 - 44 million m3 of timber (See the following diagram) would be put into the market annually within 18 years beginning from 1997, which would be a strong support for industries of urban and rural construction timber, paper-making, wood-based panel, coal and play an important role in making up the timber deficiency from the end of this century to the beginning of next century. Meanwhile, its indirect economic benefit in the state economic development would be even greater with ERR of 22.63% which reflects the contribution rate to national economy. - 44 - The Annual Timber Output Under NAP (Unit: '0000 m3) 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3.2 Environmental impact 3.2.1 While the main objective of the project is to develop IMP to reduce the pressure from the imbalance of timber supply and demand, the environmental benefits of the project are significant. After the implementation of the project, the forest coverage of each project county increases by 2-3 percentage points and the composition of tree species and plantation quality have been improved. Most importantly, with the maturity of project plantations, overharvesting of natural forests for timber industries in project areas will be gradually curbed. Case 4: Jiangxi Some 125,900 ha. of IMP under the project was established in Jiangxi- where the forest coverage was thereafter increased by 2.9%. It is estimated that the total standing volume oi the plantations at maturity would be 31.942 million m3 with the timber output of 23.94 million m3 , for which 0.84 million ha. of natural forest in the province would be cut base on the assumption of 3 8m3 of timber out of 1 ha. of natural forest. 3.2.2 Since EPG of the project has been closely followed which provided that planting sites should be mere wasteland and barren hills as well as the open forest land with canopy density less than 0.3, significant environmental benefit has been generated in moisture retention and soil and water conservation. Based on the comparative analysis of impacts with and without the project, with the establishment of 1.385 million ha. plantation under the project, an additional 232 million tons of water would be conserved and about 21.96 million tons of soil and water loss be reduced annually. 3.2.3 Nowadays, the "greenhouse effect" caused by the rising concentration of CO2 in atmosphere has been a worldwide environmental concern. However, based on findings of research, the growth process of a tree is actually a process of uptaking C02 , fixing and accumulating C, so it is believed that implementation of the project certainly plays an active role in the reduction of the"greenhouse effect". In accordance with the estimation by specialists of CAF, 1.385 million ha. of project plantation during the whole growth period would be able to uptake and fix 722 million tons of C in total, equivalentto the CO2 discharge of burning 990 million tons of standard coal. See the following diagram. - 45 - Diagram of Dynamic Change in Annual Carbon Uptaken of Plantations, NAP 7io -00 - - C uptaken of 6000 coniferous tree ._ 5000 *- C uptaken of broad 4000 leave tree - -a* C uptaken of total A'\ project forest X. " 1000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Case 5: Hubei Based on the calculation by Hubei Province with the formula: 1%Added water conservation capacity = (the non-capillary porosity of planting sites £-the non-capillary porosity of barre hills)iAthe average soil depth of planting sites jAplanting acreage jAvariation rate of tre growthij,, the additional 19.129 million tons of moisture would be retained from the 105,00 ha of project plantation of the province. Taking the sample of No.1 and No.2 administrative villages of Lengshui town ir Zhongxiang city of the Province, about 200 villagers live in an area of 800 ha. of extremel distressed ecological conditions. Prior to the project, frequent droughts hit the area, lan cracked and villagers had to get drinking water 7 km away from the villages crossing ove hills and mountains. With the implementation of the project from 1991 and establishment o 486.7 ha of plantations in 3 successive years, the local forest coverage has been increased by 60%. Miraculously, the 8-km long ditch of the village which has been drained off for man) years is now a clean stream, from which villagers can get sufficient drinking water fo themselves. 3.3 Social impact Most project areas are located in mountainous areas of the country suitable for development of forestry but underdeveloped with lower production level and poorer living standard. Of the 316 project counties, up to one third are poor ones and in non-poor project counties, there are considerable poor project townships. The total poverty-stricken population of the project is about 12 million. Obviously, implementation of the project has generated significant social impacts on local economic development and poverty relief. During the project implementation period, a direct labor income of 7.21 million yuan was generated averagely for the farmers of each project county, creating 620,000 p-d of employment. Moreover, further income of approximately 230 million yuan after final harvesting of the plantations would be obtained by each project county, would undoubtedly be a strong aid to the poverty alleviation process and living standard promotion. - 46 - Case 6: Assessment of Social And Economic Benefits of NAP for Zhaozhan Township of Daming County, Hebei Province 1. Baseline Information 1) Rural Household Project Household labor 3,350 2,680 7,100 2) In 1991 forested Land standing stock of wood average income per capita 10 ha 360m3 286 yuan 3) In 1997 forested Land standing stock of wood average income per capita 460 ha 10,500m3 1,195 yuan 2. Implementation of the Project 1992 1993 1994 1995 1996 Total 4) Planting Area (ha) 401 50 0 6 0 457 5) Planting Species White poplar White poplar White poplar 6) Infrastructure Construction new irrigation well 80 10 0 7 0 97 road rebuilt (m) 15,240 1,900 0 360 0 17,500 3. Project Benefits 7) Newly-added agro-forestry land (ha) 401 50 0 7 0 457 8) Newly-Added Employment 55,360 6,036 0 600 0 61,996 Opportunities (p d) 9) Increased Short-Term Revenues: Labor Fees ( yuan) 276,800 48,288 0 6,000 0 331,088 Revenues from Intercropping: 88,000 319,300 305,100 330,500 343,700 1,386,600 10) Revenue Estimate Thinning (10th year) Final Harvesting (15th year) Total of Tree Crops Cutting Volume(m3) 30,000 41,000 71,000 Output Value(yuan) 8,908,600 24,371,500 33,280,100 3.4 Technological Progress This is not only an outstanding feature of the project, but one of the achievements in the project implementation. The progress has been all-sided aspects which are mainly shown below. 3.4.1 Optimized Afforestation Models Through the introduction of the World's latest concepts, technology and scientific achievements in silvicultural technology, Chinese planting technical guidelines and criteria for fast growing and high yielding plantation got supplemented, improved and revised, as the result of which 18 afforestation models were developed for various project planting species adaptable to different physical conditions of planting sites, with the distinguished technical improvements below: - 47 - * First, these models take into account both the technical and economical factors. In other words, in the design of each technical measures, they are technically advanced and economically viable. * Secondly, they rationally assemble the technical procedures of the silvicultural process such as land clearing, site preparation, seedling-raising, planting, tending, thinning and harvesting. As a result, an unified set of technical criteria and operational guidelines is set up. * Thirdly, these models reduce traditional high planting density, excessive site preparation and unnecessary tending, emphasize the roles of seedling, planting and thinning and make the silvicultural technology more scientific and rational, which comply with the principle of commercial forest management for maximized economic benefits. 3.4.2 Scientific identification of planting sites The latest research finding of CAF, i.e., The Assessment Table of Site Type and Site Quality for National Timber Forest Base was adopted as the criteria for identification of project planting sites, more scientific, rational, effective site selection was guaranteed. The average satisfactory rate of planting site for the project is 99.7% . 3.4.3 Improved seedling production Much importance has been attached to the planting material development and the superior seedling raising in the implementation of NAP. Planting Material Development Program and Nursery Management Guideline were prepared and consequently, the advanced technology in seedling production has been ensured and of all the seedlings produced from project nurseries, up to 70-80% are Class I, about 20 percentage points higher than those outside the project. 3.4.4 Improved silvicultural technology has generated several direct contributions to the project, which mainly include: * The established plantation conform in quality to the required criteria. In accordance with the supervision and acceptance results from a successive 5-year survey by each project province (region), the average verification rate of the planting acreage of the project is up to 99.7% with the average survival rate of 95.8%. The average growth increment of 3-year old young stands is 127.8% of the ministerial standard. All the major planting species except the 3-year-old White poplar that met only the height indicator of the ministerial standard, reached or exceeded the 5 major indicators of ministerial standards, which reflect the plantation establishment quality. See the following Table. - 48 - Establishment Quality of Major Planting Species by Year Species Year Application Application rate of Survival/ Height rate of high rate of verified area preserving satisfactory quality seed class I seedling rate in rate of plantation three-year establishment growth 1991 98.7 92.4 99.9 96.3 146.4 1992 99.6 93.0 99.9 95.1 147.2 Chinese 1993 100 95.0 99.9 96.4 152.7 1994 100 95.8 98.8 96.6 148.9 Fir 1995 100 95.3 100 96.8 136.8* average 99.7 94.1 99.8 96.1 147.7 1991 99.7 96.9 99.4 95.3 118.3 Exotic 1992 100 96.1 98.7 95.8 116.7 1993 100 96.2 99.4 96.0 123.8 Pine 1994 100 97.6 99.8 97.1 121.8 1995 100 99.1 100 97.2 122.4* average 99.9 96.9 99.5 96.3 120.5 1991 99.4 94.4 99.7 94.6 131.2 Masson's 1992 99.9 94.6 99.7 94.0 124.3 1993 100 94.4 99.9 95.5 148.1 Pine 1994 100 96.5 99.9 95.3 132.2 1995 100 96.7 99.9 95.7 143.9* average 99.9 95.1 99.8 94.9 135.1 Chinese 1991 98.9 91.2 98.1 94.9 88.7 1992 99.4 94.7 97.6 95.1 89.9 White 1993 99.7 95.3 98.6 96.1 90.8 1994 98.9 94.1 98.7 96.8 94.7 Poplar 1995 99.3 96.1 97.5 96.5 91.9* average 99.2 94.5 98.1 95.8 91.1 1991 99.1 97.5 99.2 95.0 103.6 1992 98.6 93.3 97.7 94.4 95.0 Eucalyptus 1993 99.2 95.2 98.5 95.4 123.3 1994 99.6 96.9 98.8 95.1 102.0 1995 99.9 99.7 99.4 97.2 113.8* average 99.3 95.9 98.6 95.2 104.3 1991 100 96.7 100 93.7 108.4 1992 100 97.8 100 92.4 108.7 Larch 1993 100 97.3 99.9 93.7 107.5 1994 98.7 97.4 99.4 93.4 102.8 1995 99.6 97.2 99.8 94.2 103.3* average 99.7 97.2 99.8 93.3 106.5 Note: * refers to the incremental growth of 2-year juvenile trees Differentiation level of the stands has been reduced. Low stands differentiation and uniformn forest forms are regarded as primary properties of the high quality plantations today. In accordance with the results from typical analysis of data from the survey in 1995, especially the data of over 10,000 fixed sample plots, the differentiation level of the younglings is basically normal with the discrete degree among the rational range. The average discrete degree of all the species is between 15-20%. -49 - Case7: Jiangxi In 1995, a discrete analysis was conducted by Jiangxi Province, based on the sample survey, on project plantations in the southern, central and northern parts of the province and the result is that the discrete levels of Chinese fir, Masson's pine and Slash are 11.9%, 16.1% and 9.2%, respectively. Species Forest County Year Number Avg tree Avg Average Time of form of samples height std dev discrete level survey Chinese Class Anyuan 1991 40£-40£-40 4.50m 0.47 10.44% 1996 Fir I 1992 40£-40£-40 3.09m 0.48 15.53% 1996 1993 4O0-40£-40 2.40m 0.26 10.83% 1996 1991 40£-40£-40 3.57m 0.41 11.48% 1996 Fenyi 1992 40£-40£-40 2.65m 0.38 14.33% 1996 1993 40£-40£-40 2.22m 0.24 10.81% 1996 1991 40£-40£-40 3.19m 0.32 10.03% 1996 Feng- Shushan 1992 40£-40£-40 2.39m 0.35 14.64% 1996 1993 40£-401-40 2.12m 0.19 8.96% 1996 1991 40£-40£-40 2.67m 0.38 14.23% 1996 Anyuan Masson's Class Pine I 1992 40£-40£-40 1.86m 0.3 16.13% 1996 1993 40£-40£-40 1.38m 0.18 13.04% 1996 1991 40£-40£-40 2.29m 0.41 17.90% 1996 Fenyi 1992 40£-40£-40 1.65m 0.34 20.61% 1996 1993 40£-40£-40 1.25m 0.2 16.00% 1996 1991 40£-40£-40 2.21m 0.34 15.38% 1996 Feng- Shushan 1992 40£-40£-40 1.60m 0.3 18.75% 1996 1993 40£-40£-40 1.22m 0.16 13.25% 1996 1991 40£-40£-40 4.31m 0.35 8.12% 1996 Anyuan Slash pine Class 1992 40£-40£-40 3.15m 0.34 10.79% 1996 1993 40£-40£-40 2.36m 0.19 8.05% 1996 1991 40£-40£-40 3.33m 0.3 9.00% 1996 Fenyi 1992 40£-40£-40 2.82m 0.32 11.35% 1996 1993 40£-40£-40 2.08m 0.18 8.65% 1996 1991 40£-40£-40 3.53m 0.31 8.28% 1996 Feng- Shushan 1992 40£-40£-40 2.66m 0.27 10.20% 1996 1993 40£-40£-40 1.99m 0.17 8.54% 1996 - 50- * Quality of the young growth has been improved. To possess the first-hand data regarding the planting quality and the general performance of young trees under the project, two separate surveys were conducted by project units at all levels under the unified organization and supervision of PMC in 1995 and 1997 with the following results: (1) 1.17 million ha., representing 84.5% of the total project plantation acreage was Class I plantations with both preserving rate and incremental growth satisfactory to the standard promulgated by MFO; (2) Class II plantations were 179,000 ha., accounting for 12.9% of the total planting acreage with the preserving rate meeting the standard, but the incremental growth currently not but may meet the standard if sufficient management and tending were practiced in future, and (3) Class III, 36,000 ha. (including the area devastated by nature disasters), amounts to 2.6% of the total with both the preserving rate and incremental growth were under the standard. Class 11 Class III Class I * Both the quality and benefits of the project plantations have been promoted compared with those outside the project (Details see Annex 2). The survival rate or the preserving rate of the project plantations was increased by 3-5 percentage points and the growth increment over 15%-50%, compared with the average level of commercial plantations planted at the same time out of the project. In line with the verified results of the successive surveys of the plantation performance throughout the country conducted by MFO from 1991 to 1994 for four years, the planting quality of the project was at the first place among planting programs of the country. * Establishment costs have been reduced while benefits increased. Both the technology to be employed and economic benefits to be generated were given adequate considerations on basis of the close match of the two factors in the design of the afforestation models, which has ensured technical feasibility and economical viability of the project. Consequently, the establishment costs got reduced and economic benefits improved. For instance, based on the sufficient identification of the project, the planting density of the plantations under the project were generally cut by 10-15%, which have created 10% of reduction in the establishment costs and significantly improved the benefits. - 51 - Case 8: Comparative Survey Typical comparative survey was made in December 1997 to the NAP young growth and the ordinary FGHY plantation in 7 project counties of Qianyang, Taoyuan, Chaling, Tongdao, Ningyuan, Linxiang, Rucheng of Hunan province. The results were as follows: 1. NAP plantation, ordinary plantation, and ministerial standards of 7-year Chinese fir 1Rsv. A heMinistera l 80 o p a s standard 60 /-*_ 171 .40 / * 11 _ Project 20 * * * 1 O 0 13 Ordinary Reserving Average height Average DBH Volume rate £ (0.lm) (0.1cm) (m3/ha) 2. NAP plantation, ordinary plantation, and ministerial standards of 6-year Masson pine 100. Ministeral 80k _ * || _ standard 60 40 ~ ~~~~~~~~~~~~~~UProject 20k La-- Ordinary Reserving Average heightAverage DHB Volume rate % (0.(lm) (0.1cm) (m3/ha) 3. NAP plantation, ordinary plantation, and ministerial standards of 5-year Slash pine 100. ~ ~ ~ ~ ~ ~ *4 Ministerial SOS r i standard 40 Z | r-r | r s .Project O , * _ aOrdinar y Reserving rate Average heightAverage D H Volume yearsoary (0. m) (0.i (cm) (m3/ha) 4. NAP plantation, ordinary plantation, and ministerial standards of different growth year of Chinese fir 8 +~~~~~~~~~~~~~~~ Ministerial 6 7 .standard 4 = ' Project 0 1 , * , , . *-O~~~~~~~~~-- - rdinary 3 years old 4 years oId 5 years old 6 ycars old 7 years old (m) (m) ~~~(M) () (M) - 52 - 3.5 Contributions to Chinese Forestry Reform and Development MFO defined at the beginning of the project the four objectives of the implementation of NAP to facilitate the development of FGHY; promotion of forestry management level; acceleration of the process of developing forestry by science and technology; and continuation of forestry opening up to the outside world, all of which with the implementation of the project, have been basically realized. That is regarded as one of the major contributions of NAP to the deepening reform of the management system in Chinese silviculture and to the extension and application of advanced technology. 3.5.1 Promote the rapid, healthy development of IMP * First, as one of the most important steps in China's strategic design of establishment of approximately 100 million Mu of IMP by the end of the century. NAP with investment of 3.76 billion yuan ( in average 500 million yuan each year), is equivalent to the total investment of China's silvicultural infrastructure input by the Government. With 1.385 million ha. of high quality IMP established substituting over 1/5 of the planned 100 million Mu, NAP has played a significant role in the realization of Government strategy. * Secondly, due to the superiority in both technology and management of the project, particularly the improved methodology and technical measures in seedling management, silviculture, scientific extension, funding and finance, the targets of plantation establish under the project i.e., "high quality and profitability", "fast growth and high yield" were factually realized . At present, all the project plantations have been established and will be ready for commercial use, which has set a living example for the local cadres and farmers to learn from. It is regarded that the demonstration and radiation functions of the project to the adjacent areas have a profound significance. 3.5.2 Effectively promoted the level of forestry management The implementation of the project is not only a process of introduction of the updated technology and management methodology, but a process of seeking actively the management models of plantations adaptable to China's reality, in which the level of plantation management of the country has been improved significantly. In the light of characteristics of the project, eight support systems in organizational management, silvicultural technology, seedling supply, technical extension, environmental protection, funding and finance, planing and regulating, and information and supervision, together with 17 corresponding management regulations and guidelines were established under the project (Details see the following box). It is unprecedented in the country to manage systematically such a big forestry engineering project that covers 16 provinces and autonomous regions and 316 counties. Practice has proved that the said management systems are applicable, which is not only a sure guarantee of the smooth implementation of the project, but an excellent example and radiation to the whole China's forestry. For example the Protection Forest Project in the upper reaches of Yangtze and Yellow Rivers launched in 1998 and the Natural Forests Protection Project launched in 1997, have adopted some of the experiences in management from NAP project. - 53 - Case 9: Relevant Management Regulations, Technical Guidelines and Criteria, NAP 1. NAP Management Regulations 2. Requirements for General Afforestation Designing in Project County 3. Procedures for Working Designing of Afforestation Activities 4. Regulations for Check and Acceptance of Established Plantations 5. Methodology for Project Planing Management 6. Provisional Regulations for Funding Management 7. Accounting Regulations 8. Auditing and Supervision Requirements 9. Regulations of Scientific Research and Technical Extension Management 10. Environmental Protection Guidelines 11. Implementation Program of Environmental Protection 12. Guidelines for Seedling raising Technology and Nursery Management 13. Seedling Criteria for Major Planting Species 14. Regulations for Pruning of Major Planting Species 15. Requirements for Thinning Interval of Major Planting Species 16. Fertilization Program of High Yielding Plantations of Major Planting Species 17. Criteria of Fast Growing-High Yielding Plantations of Major Planting Species In particular, the unique management system of disbursements against statements of expenditure (SOEs) as a necessary economic leverage to effectively strengthen project management especially the plantation quality, is another major feature of the project. With direct linkage between fund disbursement and plantation performance, the appropriate relationship has been truly established between plantation establishment and finance, which is indeed one great reform on the traditional management method in China of fund disbursement for afforestation without any debt service, which consequently, resulted in poor performance of stands. 3.5.3 Accelerate the process of development of forestry relying on science and technology With the enforcement of input in science and technology, and scientific management practiced, the quality of the plantation establishment was improved greatly and increments of younglings added, which fully embodies the thoughts of "Science and technology are the first productive forces." Based on statistics, the contribution rate of science and technology to the project benefits is up to 50%. One point worth mentioning is that every subcomponent, even every newly-planted tree in the 1.385 million ha. of project plantations in over 300 counties of 16 provinces with adequate input of science and technology is indeed an important mark of general improvement in China's silvicultural technology. Moreover, because of the outstanding achievements of the project, some of the technical criteria and measures adopted in the project have been incorporated in the revised National Afforestation Technical Guideline in 1996. Meanwhile, the methodology of integrating research with practical production that is developed in the project technical extension, the effective form of transferring scientific findings into productivity, together with the operational mechanism of plan-guided, funding-guaranteed, production-geared scientific research and production relying on research are bound to have active effect on the realization of the national objective of developing forestry by science and technology. - 54 - 3.5.4 Promote international cooperation and opening up of China's forestry to the world As we insisted on the way of blazing new trails while striving for efficiency in the preparation and the implementation periods, NAP has won an excellent domestic and international reputation. In the preparation of NAP, the high quality and rapid speed of work were highly praised by the Bank Appraisal Mission. Similarly, during the implementation of the project, the achievements have also been praised repeatedly and rated as " highly satisfactory" each time by the annual Bank supervision missions. Especially, in the general checking jointly held by the World Bank and the Ministry of Finance (MOF) of more than 100 ongoing Bank-financed projects in 1993, NAP was among one of the best for its excellent implementation. In 1996, NAP was once more identified by the Bank as one of the demonstration models for transfer of new technology and excellent management. In view of the outstanding achievements of the project, the remarkable abilities of China forestry sectors in the implementation and management of the Bank-financed projects have helped create more opportunities for international cooperation in the Bank-supported projects. Shortly after the launching of NAP in 1990, another forestry project -- 200 million-dollar World Bank Loan of" Forest Resource Development and Protection Project" began in 1992, followed by "Nature Reserves Management Project " in 1995, of 17.9 million dollars granted by Global Environment Facility. In 1996, the preparation of the third World Bank forestry project -- 200-million dollar loan project named "Forestry Development in Poor Areas" was in process. Facts proved that in the implementation of NAP, not only have the new concepts, and the advanced technology and management methodologies in plantation establishment been introduced from other countries, but large numbers of modem management personnel been trained and brought up skillful in the management of foreign-funded projects and meanwhile, the outside world in turn got to understand the achievements in China's forestry reform and advancement, all of which would definitely produce profound impacts upon the further reform and opening up of China's forestry to the outside world. - 55 - Part IV Major Experience and Lessons As a giant investment project spreading over most provinces of China, NAP is now successfully accomplished in line with the prescribed assignment within a few years, but what experiences have been scored? and what lessons have been drawn? Based on the summarization of the project provinces (region) reports, it can be generally concluded below: 4.1 Substantial support from all government levels and active local participation are preconditions of smooth project implementation The project is one of the afforestation programs of high standard and strict requirements with broad participation and important social significance. If in absence of the support of the government from various levels and the participation of the broad masses, the starting-up and operation of the project would be difficult and it is hard to imagine the possible results. 4.1.1. Governmental support may be summed up in three aspects: * First, the government has been regarding the project as an integral part of the local economic development strategy and placed it on the government's agenda. The identification of the project by Chinese government was mainly from a strategic point of resolving the problem of timber shortage and improving the ecological environment. As the leading body, the MFO had from the very beginning put the project in an important position, as a " Pilot Program" and a " Profile Program" pertaining to the forestry reform and opening up to the outside world. Thus, the project work has been actually under the leadership of the Minister. The project leading group of MFO had held 38 special meetings for discussion and tackling of related problems and issues. The project provinces and counties had also done the same work and gave an elaborate attention and support. Hunan Province, for example, regarded the project as an outward "Window Project" for promoting the economic development of the whole province. Anhui Province also treated the project as a "Priority Project" of "Second Forestry Pioneering". Jiangxi Province regarded the project as a "Leading Project" of "Creating Another Jiangxi in the Mountain Areas" while Sichuan Province listed the project as a key program of rural economy development. * Second, to tackle the existing problems and give support to the project in aspects of manpower, material and financial resources. The forestry sectors from the MFO down to the project provinces and counties all had established project management offices for the project, and staffing related technical and managerial personnel of silviculture, finance and information service responsible for the project implementation and management work. During project implementation, more than 780 million yuan of counterpart funding had been provided by the provincial, prefecture and county levels. All of this guaranteed the successful implementation of the project. * Third, the government leaders at all levels participated the project activities. Since Mr. Attila I. Sanmez, the former Chief Representative of RMC and Mr. Gao Dezhan, the former minister of MFO planted the first tree of the project at Dingzhoushi city, Hebei Province in March 1991, it pulled open the prelude of the leaders at various levels to join the project afforestation activities. Based on the incomplete statistics, up to 1000 p-t of the leaders at provincial and county level had joined project planting activities during the project construction period. Among the project plantations, the demonstration forests established by the government of various levels exceeded 20,000 ha. - 56 - 4.1.2. One of the important standards for the WB to assess project implementation successfulness is the participation degree of farmers and the income increment of final beneficiaries. This is just conformable to the consistent policy of China --- "all for the people and all depending on the people". With regard to the participation of the broad masses, it had adopted a series of measures, they are: * Firstly, it had developed preferential loan conditions. One of the major risks of the project is the exchange risk, however, most of the risks were undertaken by the ministerial financial budget(except the direct use of the foreign exchange). For the loan and repayment made by RMB, the annual interest rate is at 6%. During the grace period, the interests will be capitalized. In addition, in line with the characteristics of a long gestation of forestry production, the maturity is determined by the rotations of different species with the maximum of 20 years and the minimum at 8 years. Thus, it had greatly promoted the initiatives of the masses to participate in the project and use the loan for afforestation activities. * Secondly, the responsibility, right and interest of the participants are fixed in the form of contract. Through the signing of onlending contract, three major concerns of the local people are well addressed. (1) the seriousness of the contract is ensured by notarization by the legal sector. (2) the stabilization of the land tenure for no less than 50 years and the policies of"those that plant the trees will own them" and "those that jointly plant will own the plantation collectively" (3) the rationality of the return distribution. In most areas, it had clinched the principle of "Repayment by Timber", the timber that will be used for repayment only make up about 20% of the total output. Regarding collaborating afforestation, it should be based on the input of funding, land and labor force converting into commensurate stocks and then sharing the profit according to the stocks they maintained. * Thirdly, in the whole process from the design to the implementation of the project, the sectors of project management and design had seriously solicited the comments of the masses and tried their best to satisfy the masses' requirements, which had made the masses participation realizable. 4.2 Organization and implementation in line with socialist market economy is the primary motivation of successful project implementation Development of commerciai forestry means putting the forestry in market. Thus, strictly abiding by the basic law of the market economy is an important aspect of practicing classified management from the general concept of forestry development in China. The implementation and operation of the project basically follows the said principle. 4.2.1 Based on the principle of market economy to acquire the maximum benefits, the "Compensation System" of input, the "Reimbursement System" of payment and the system of "Special Fund for Special Purpose" were adopted. From the project starting-up, the onlending agreement (or contract) stipulating explicit responsibility, right and interests had been signed at all levels. Since the onlending agreement signed on July 14, 1990 in Beijing between the MFO and the governments of 16 P & A, the similar agreements (contracts) were signed between the project province and counties, the county with the afforestation entities. Therefore, the compensable application of funding has been legally guaranteed. Through the signing of these agreements (contracts) the forestry investment had realized a radical transformation from without compensable utilization to compensable application. The "repayment awareness" of the project units at all levels had been rooted. The "reimbursement system" of funding payment refers that only the project activities which meet the prescribed standards can be eligible for - 57 - reimbursement. As a result, the "quality awareness" of the afforestation entities was greatly strengthened. Especially, since practicing the earmarked fund for special purpose, the use of credit fund and counterpart funding were developed optimum economic benefits so as to promote "effectiveness awareness". The formation of the above "three kinds of awareness" indicate that the project implementation units at all levels had primarily set up the "market awareness". 4.2.2 It had in the design conception and implementation of the project incorporated the market- oriented law. The cultivation target and establishment scale for each species are based on market survey and analysis, and at the same time, timely adjustments are made in accordance with the change of market. As for oriented-cultivation, at the beginning of project design, attention was paid only to the primary arrangement of the timbers with outstanding shortages in the market, such as construction timber, fiber wood, wood-based panel timber and the pit pole etc. However, with the implementation of the project and the development of large forestry processing enterprises, the goal of oriented-cultivation become gradually more specified. The project afforestation acreage directly connecting with the processing enterprises accounts for about one third of the total plantation area. These processing enterprises include the MDF factories of Leshan, Sichuan Province, of Shishou, Hubei Province, and of Fuzhou, Fujian Province; the particle-board factory of Changsha, Hunan Province and the Paper Mills of Nanning and Jiangxi. Regarding the species selection, the proportion of some unmarketable species such as Paulownia and Black locust have been gradually downward readjusted; On the contrary, the planting scale of some species with wide use and good market such as Pines, Eucalyptus has been augmented. Obviously, this is the result of market role. 4.2.3 Newly established afforestation entities should meet the needs of market economy. The afforestation entity is the basic unit of carrying out the project activities. Among more than 10,000 afforestation entities, 50% of them were newly built forest farms, Of the new farms, about 80% are in a share-holding form with the labor, land and funding contribution converting into stocks and then profit- sharing by stocks. It not only has a clear property right, but also a reasonable profit-sharing. In 1997, the MFO organized the project provinces (regions) carrying out an inspection to the right and interest set forth in the contracts. The inspection had further strengthened the tenure of land and stabilize the reasonable profit-sharing. This is an important foundation for the successful project implementation. 4.3 Improved management system, scientific and strict managerial measures are primary assurance of smooth project implementation The project not only included many provinces (regions), but also involved in a number of fields of forestry. The mobilization of various forces to participate in the project and to cooperate closely is a must to achieve the project target. Therefore, it is essential to establish an effective and well-organized management system. With the focus on "quality and benefit ", the project had set up eight supporting systems and developed appropriate managerial measures and operational approaches as groundwork for the successful implementation of the project. - 58 - The Chart on the Organizing Authority and Supporting System Existing institution of forestry Bodies of project sector management GASS & SFF . SSCPG l Afforestation Dept. -,___ TSG |_ -| DFRFP 1< - ~ ~ -I ProjectMgt. Div. | l MOF A AFIPD . . . . - IG | Level P t L nWB project Centeral a C D g Depti o n t r o Pling Div. _ PMC Leading Group 4.3.1 Institut al Mt S mCAF - - - REG ! r: DWFPC |---------l EPG Finance Dept. a - - - - m n a Financial Div. ft Intemational Coopration Deptalishd a po External Liaison Divn g ^ _ q ~~~Forestry Industry Dept. I - - - - - - Procurement Div, D - J t Seed & seedling station o r deatm nSSPCG |Finance Dept _Affrestation Div. I- - - - _| ProjectMgt. Section | Provincial i d s a ecisi nstitute n t Procject C Level h rd ect eabing in t Mnic tenprov and c TSG p rovincial Implementation ! ~~~~~~Group De orsr Rsac Institute -T Keeac - -xes I M Group . |~~~~~ Protection Satain ------- EG | |Planning commissionl Fiac Di Planning&Fiacseto| established at the rovicia andcouiFinance & planning u nit p n Finance & Planning group l participad |Financ Brel s Seed & seedling fstt y f n | SSPCG 1--- County m o F Silvicuntureunit ru lo st Project ManagementOfsounty Level ect ng f sI PMO | l l Group | | Burl lu 2 | ~~~~~Forestry Research Instue|| Research & extension g7roup| | |Planning commissionl D~~L-Lisease& petcnrlstation EPG forsainEnmity i 4.3.1 Institutional Management System The system refers to a complete set of leading and managerial institutions from the top to the bottom. Starting from the project preparation, MFO had established a project leading group with the minister as the group leader and composed of the directors of related departments. The group holds the responsibility of the major issues discussion and decision. In addition, the World Bank Loan Project Management Center had been established in the MFO, the provincial and county project leading groups had also been established at the provincial and county levels with the persons in charge taking the group leader and participated in by related sectors, such as forestry, finance, planning and audit etc. The provincial Departments of Forestry and the County Forestry Bureaus also set up Project Management Offices - 59 - responsible for project organization, management and implementation. That management system has played an indispensable, effective role in carrying out the project activities. In project management, personnel is regarded as a key factor, for which human resource development is highly weighed during the project implementation. To this end, at all levels of the project management office, not only necessary specialized personnel are staffed, but chances of training are proved for them to improve their job position competence. During the project implementation period, one million p-t of managerial and technical staff and planting workers have been trained, which actually guaranteed the execution of the advanced managerial and technical measures of the project. 4.3.2 Technical Management System This system comprises a whole set of strict technical standards, operational procedures and specific measures used for all links in the project implementation process. * First, in the annual operational design, strict technical criteria and operational guidelines are developed for working procedures, such as site preparation, planting hole size, planting methods, tending measures, thinning intensity and harvesting age, which provides rules and regulations to be followed for carrying out afforestation activities. 3 Second, in the course of afforestation, comprehensive technical management guidelines are mapped out, which require that training should be conducted before planting, guidance provided during the planting operation and check and acceptance carried out after the planting activities. By doing this, the effective implementation of the set technical standards are ensured. 3 Third, for quality control, the method of checking and acceptance for each working procedure is adopted, which indicates that if one working procedure is not up to the requirements, the next one could not be started. Meanwhile, the method of self-check by the afforestation unit, overall check by the county-level PMO and sampling check by the provincial-level PMO is adopted to guarantee the afforestation quality. 3 Fourth, for construction management, a responsibility contract system is used in many localities, which specifies the responsibilities for technicians, construction personnel and tree planters. To encourage those people's initiative in better carrying out the afforestation activities of the project, one of the functions of such a responsibility contract system is to link the task and quality to the income of those contractors. 4.3.3 Planning Management System The Planning Management System is a network for exercising strict planning management in a unified way. When plans are made for the project, the principle of seeking the truth from the facts is emphasized. A "two ups and two downs" method is adopted to strictly keep the afforestation in line with the plan. Early each year, according to the project afforestation target, a preliminary plan is mapped out. Based on this plan, the department/ unit at each level makes preparations for counterpart fund, seedlings, land to be planted and labor input. Then, the PMOs at each level will formulate a formal plan according to the preparatory work and make it known to the related units. Upon receiving such a plan, each participating county will, in accordance with the plan, carry out the project activities in complete compliance with the planting species, the area to be planted, preparation of the counterpart fund, supply of seedlings and extension of scientific research. - 60 - 4.3.4 Environmental Management System This system comprises the management methods and measures to be used for minimizing the impacts caused by the project activities on environment. Therefore, the EP groups are set up at ministerial, provincial and county levels, the Environmental Protection Guidelines are formulated and the environment monitoring plots established across the project area to monitor such aspects as loss of soil and water, soil fertility, pests and diseases. This has not only strengthened the awareness on environmental protection, but also kept the impacts on environment at minimum in the course of afforestation. Additionally, this totally new concept and practice will create positive influence on the plantation development in China. 4.3.5 Information Management System The information management system is actually a computer-based information management network. To meet the practical needs, the project has developed 8 databases, namely, target database, subcompartment survey database, database of seed collecting base and nurseries, project progress database, subcompartment growth database, comprehensive database of plantation base, timber market database and afforestation investment database. Those databases are used for summarizing and analyzing the data on planting techniques, tree growth, financial input and costs for afforestation to provide basis for exercising scientific management and offering timely guidance to the project implementation. The systems of extension of scientific research results, seedlings and financial management, which are very rich in contents, will be described in Sections 4.4, 4.5 and 4.6 respectively. 4.4 Added technological input and enhanced technological content are important measures for raising plantation productivity Since the forestry scientific research institutions and afforestation entities are relatively independent from each other in China, how to coordinate their targets and interests and how to make scientific research serve production are important issues for the project to tackle. The practice over the past 8 years has proved that the reform and exploration is successful. As a result, an operational mechanism for revitalizing forestry through science and technology is basically formed 4.4.1 A scientific research extension support system is established, which is an coordinated, operational system. This system consists of two layers. The first layer is the scientific research extension leading groups at the ministerial, provincial and county levels, which are responsible for coordination and link the scientific research extension with the production. The second layer includes the research extension groups at all levels, which are composed of 10 central research topic groups headed by 10 noted specialists from the Chinese CAF and 84 research topic groups comprising over 1,300 specialists and technical personnel at provincial and county levels, undertaking scientific research and extension plans. These two layers have formed a scientific research extension network covering the whole project, thus ensuring the effective operation of the scientific research extension work for the project. 4.4.2 At the early stage of the project, scientific research extension work, as an important part of the project construction, was embedded in the project, thus changing the relationship between scientific research and production from "external circulation" to "internal circulation" and realizing the organic combination. Meanwhile, based on the practical needs and the objective to achieve quality and benefits, a relatively perfect scientific research extension plan is mapped out after in-depth discussions of the experts at home and from abroad. This plan, emphasizing practicability and efficiency, includes such contents as - 61 - result screening, integration and extension, experimentation and research on the key techniques needing to be improved. The plan aims at achieving good results to be used for the project afforestation. . Eucalyptuse EGzup J xMinisteriln MasfsMassepineGloup l I-eadingGroup |X -r PoparGroup Centlal PMC Larch | su Gnup 2 _ level eEadti npe GroupG cA; -r Eucalyptus Gu eu Pjenict Reseaeved treeG oup each level isresponsixebr isingftice d fre FeftorigtGhfunp uc-i _| Myorrhiza(Group | s t q ~~~~~~~~~~~~L-W.o d-propen.y-. up >- _ _ fl t q~~I Subject Group 1 Peovincsil PMO e si r ar etensionupp level Leading G36up c i i ta 16 T l q~~~~~~~~~~~~~~- Subject Group X County PM if r level Cony_eso Gross rot=e leadingGroup |\plo&foettnniy 4.4.3 To provide reliable financial support to the scientific research estsintoractia prd tivit at each level is responsible for raising the needed fund. MFO is responsible for the fund used for scientific research work at the central level and earmarks 5.2 million yuan for the project. The sixteen P & A are responsible for the scientific research extension within their individual boundaries and appropriate a total of over 12 million yuan and the 316 participating counties input in total 16 million yuan to ensure the effective development of scientific research extension. 4.4.4 To quicken the process of transforming the scientific research results into practical productivity, the following effective methods are chosen and applied. * First, To achieve the benefits through applying research results to the specific afforestation activities and to help the local people to learn and copy the successful practices, 11,500 hectares of demonstration forests are established for extension of different scientific research results. At the same time. some measures are adopted to encourage the technicians to go to the grass-root production units for technical extension and propagation and to help solve the practical problems in production. * Second, technical manuals and pamphlets are compiled and printed. The central research groups at the ministerial level, by absorbing the latest scientific results, compiled 10 technical books related to Chinese Fir, Masson Pine, Exotic pines, Broadleaf species, fertilizer application, etc.. Those books contain practical and operable contents concerning the intensively-managed plantations. They are distributed to the afforestation units and play a nice role. - 62 - * Third, the scientific research results, by means of the technical design of the project, are applied in the formulation of the technical documents and technical guidelines, which proves to be a major approach for the project research result extension and plays an important role in the application of science and technology to the afforestation. * Fourth, various training classes are held to pass on the scientific research results to the technicians and forest workers, which is the quickest way to apply the results to practical afforestation activities. 4.5 Enhancement of planting stock development is the key measures to establish high quality plantations " To reach the plantation standards of current years depends on best seedlings and to reach the long-term standards depends on good-quality seeds" is the summing up of the experience gained in the course of the project implementation. For the project afforestation, the rate of utilization of fine seeds is over 99% and Grade I seedlings up to 95%. This mainly results from emphasis of fine seeds and strong seedlings at the very beginning of the project. Thus a set of effective and perfect methods are developed. 4.5.1 A seed and seedling management support system is developed, which makes the three sectors of project management, seed and seedling, and scientific research function closely. This system is mainly composed of the seed and seedling production coordination groups at all levels. The responsibilities and roles of the groups are: * To carry out the regionalization of seed provenance and formulate standards for seeds and seedlings according to the principle of achieving high quality and benefits and to be in charge of quality control of seeds, seedlings and nurseries to exercise a unified management of seeds and seedlings; * To organize the production and supply of seeds and seedlings according to the plan on the demand of seeds and seedlings set by the project management offices; * To organize and implement the "Accelerated Planting Material Development Program" called"Jones Plan". This plan requires that the project management departments put forward their requirements, the scientific research departments formulate implementation plan and the seed and seedling management department prepare the fund and designate the implementation units. This plan is implemented by the three departments and satisfactory results are achieved in the implementation of the plan, as described in Section 2.2.2. 4.5.2 For management of seeds and seedlings, the method of supply of seeds from designated points, seedlings breeding at designated locations, directional supply of seedlings, and issuing certificates for fine seeds and Grade I seedlings is practiced. * Supply of seeds from the designated points means that the seed supply department provides the seeds in a unified way in compliance with the specific seed provenance's and their requirements for different areas and the particular seed provenance required by the project units. * Seedling breeding at the designated locations means that each participating county, in accordance with the seedling raising conditions and technical level, designates a major nursery as the main body engaged in production and supply of seedlings and meanwhile selects a number of small nurseries as - 63 - the supplementary ones to the main nursery according to the distribution of the sites to be planted so as to shorten the transportation distance. * Directional supply of seedlings means that the project management department signs contract with the main nursery (or small nurseries )concerning the requirements on quality, price and supplying spots to ensure the unified supply of the needed seedlings. * The issuing of the two certificates means that the units doing seed collection and transport, seedling raising and planting must not only hold the certificate issued by the seed and seedling management department specifying the seed production place and quality, but also hold the Grade I seedling certificate issued by the seed and seedling coordinating group of the project. The practice proves that the above-mentioned methods are the effective measures for ensuring the high quality seeds and seedlings in the course of the plantation establishment. 4.5.3 To raise the quality of seedlings, strict technical measures are taken in the management of nurseries. * In compliance with the requirements on producing even; and strong seedlings, the regulations on technical management of nurseries are formulated and implemented. The regulations state explicitly the criteria of Grade I seedlings of different species and especially the quantitative indicators of root system, thus changing the judgment of seedling quality from the part above ground to the one underground, which is a big progress. * For bare-rooted seedlings, such techniques as thin sowing, culling, root pruning, seedling grading and packing are promoted and implemented. For containerized seedlings, the emphasis is put on improving potting medium by increasing organic matter content and reducing the specific gravity of potting mixtures, which has greatly improved the quality of containerized seedlings used in many parts of China. * With respect to the clonal stock raising, the emphasis is put on enlarging the stock raising area and increasing the number of colon used. The percentages of the plantation established by clonal materials are 100% for Poplar, 19% for Eucalyptus and 5% for Chinese fir. 4.6 Enhancement of the management and supervision of fund use is economic lever to ensure effective project implementation The management of financial resources is the central point of the project management. How to strengthen the management and supervision of the fund and how to use well such an economic lever is a key to the successful implementation of the project. Based on the introduction and blazing new methods, a set of effective financial management methods are developed. The important points are as follows; 4.6.1 The rules and regulations are formulated and the training of financial personnel is strengthened. Since the project is a billions- yuan project covering over 300 counties, it is indispensable to exercise a strict and standardized financial management. For this purpose, the project has introduced the international financial system and accounting methods and combined them with the characteristics of the forestry production in China. As a result, the financial management regulations and accounting methods for the project are developed so as to keep the financial operations in line with the set regulations. - 64 - Meanwhile, training classes are held at different levels. As a result, the quality and ability of the financial personnel are improved. Through attending the training classes, the financial personnel have mastered international financial management and accounting methods and known well the business on financial management for the project, thus ensuring the effective operation of financial management work. 4.6.2 For financial management of the project, the reimbursement system is the core. As stated above, the reimbursement system is a unique, effective method for financial management of the project, which is an important reform of the China forestry financial management. When the project makes reimbursement of credit or loan fund, the basic regulations on the reimbursement system of the world Bank must be strictly followed and some supplementary contents are also added according to the requirements of the project quality and management. The supplementary regulations stipulate that nine types of reimbursement cannot be made and check system combining planning, planting quality and financial affairs is practiced. Thus, the reimbursement method has played a good role in the implementation of the project. 4.6.3 Measures are taken to ensure the full preparation of the counterpart fund in a timely base. The counterpart fund accounts for 40% of the total budget of the project. Since the reimbursement system is practiced for using the credit fund, the afforestation units must have certain amount of fund, i.e. the counterpart fund ,to start the project. To ensure the counterpart fund to be prepared fully and timely, the agreements signed by the departments at each level specifies the amount and the sources of the counterpart fund and at the same time, strict measures are taken in the operational process, that means that the units, when making reimbursement, must submit the required documents provided by the bank stating that the counterpart fund is ready. In this way, the percentage of the counterpart fund put into place for the project is up to 95%. 4.6.4 Repayment is considered before the fund is borrowed and used. Ensuring the clearness of the debt and good repayment is one of the important issues of financial management of the project. Therefore, on- lending agreements are signed with the governments at each levels, which clarifies their individual debt and rights. On the other hand, in the course of the project implementation, contracts for using the credit fund are signed with the afforestation entities when the credit fund is granted to them. The contracts specify clearly the tasks to be undertaken, debt amount, terms and conditions, their rights . To make sure the debt and the rights of creditors are fixed, the World Bank Loan Projects Management Center of the former Ministry of Forestry made an inspection and check on the debt of the afforestation entities in 1993 and solved the issues of the debt which were not clear or fixed. Meanwhile, to ensure the repayment in future, the repayment methods have been developed and a mechanism for repayment has set up after the 1993 inspection. The yearly repayments to be made in future are calculated in advance. The channel for collecting repayment fund by the governments at all levels has been identified and the method for the afforestation entities of making the repayment by raising a mortgage on their existing forests is worked out, which has laid a solid foundation for making the timely and smooth repayment in future. 4.6.5 Auditing is used as an supervision means to improve the financial management work.. Auditing, as a conventional method for supervising the project activities, is conducted at each level on a yearly basis, which is seldom used in the financial management of other afforestation projects. The practice has proved that this method is good to the improvement of financial management of the project and also to the implementation of the project as a whole. For instance, through auditing in 1991 and 1992, a few project counties were found to have the problem of delaying the counterpart fund, even some counties to divert the project fund to other purposes and some management personnel to have the embezzling problem. Those problems were dealt with by the project management system in a timely manner with a purpose of checking the erroneous practices at their outset. The methods for solving those problems have been used - 65 - as the management measures for the project and helped the project develop smoothly towards the anticipated objectives in line with the set requirements. 4.7 Major Lessons Although the National Afforestation Project has achieved tremendous success and gained a lot of experience, there are still some lessons to be used for implementing the future World Bank loan projects or absorbed by the forestry investment projects. 4.7.1 There exists the contradiction between the long rotation period of the plantations and the early repayment of the loan. Although the NAP is successful and has, from a long-term point of view, achieved remarkable economic, social and environmental benefits, its investment recovery period is longer than that of other projects because the rotation period of the plantations is generally 10 to 30 years. Although the project design has given some consideration for a grace period of 8 years during which the interest would be turned into the principal, it would be considerably difficult for some afforestation units to make the timely repayment of the loan because of the characteristic of forestry in slowness of achieving benefits. At present, there are a number of methods to solve this contradiction. But the following two points must be considered. The first one is to establish a close link between loan borrowing and repayment, that is to say, to assess the comprehensive repayment ability as a prerequisite when an afforestation unit is selected. The second one is to make a rational arrangement of short, medium and long term benefits to be achieved when the contents of the project are designed, that is to say, to allow the afforestation units to undertake some fast benefit making businesses like developing economic forests while their major task is to establish the intensively-managed timber plantations. 4.7.2 The risk that the project takes in foreign exchange is too big. Although the central financial department takes the risk for 85% of the total foreign exchange of the project, the risk for the remaining 15% of the foreign exchange directly used by the forestry sectors is too big for them to take ( for instance, the exchange rate was I dollar to 4.7 yuan when the project was started, but increased to 1 dollar to 8.3 yuan in 1994.)since the project is a forestry project which is oriented towards social benefits and takes a long period of time in achieving economic benefits. 4.7.3 The planting density is relatively high. Although it was considered at the early stage of project design that increased input in fund, science and technology could improve the quality of the project afforestation and the growth of trees, the planting density of different species was reduced by 15 - 20% as compared with the traditional practices in China. However, as matters stand, there exist some problems with the relatively high planting density of some species. Such a lesson has drawn great attention from the forestry institutions of science and technology. Therefore, the planting density has been rationally readjusted for the Forest Resources Development and Protection Project and the Forestry Development in Poor Area Project. 4.7.4 The quality of seedlings is not quite satisfactory. Although great attention has been paid to the production of seedlings and many effective management methods and measures have been taken to improve the quality of seedlings which indeed has been improved a lot, the production of seedlings is still a weak point in the implementation of the project. The major point is that the individual seedlings could reach the set standards, but in view of the totality, there exists a considerably differentiation, which could not meet the requirements for establishing intensively-managed plantations. - 66 - Part V Involvement of the World Bank During 10 years of preparation and implementation of NAP, strict supervision has been conducted and timely guidance and instructive recommendations regarding the newly-emerged troubles and problems provided by the World Bank. In General, the Bank's supervision and management have been highly effective which are summarized below: 5.1 Highly efficient, responsible management In the whole process of preparation and implementation of NAP, the high efficiency of the WB staff and consultants has left an outstanding impression upon the Chinese colleagues. Indeed, it is unprecedented for Chinese forestry sector to manage such a huge Bank-funded afforestation project of 300 million dollar and a totally new task to the Chinese forestry managerial staff at the beginning. However, it took only one and a half years to complete successfully the preparation of the project from identification, preparation, pre-appraisal, appraisal to the formal negotiation and signature of DCA, which is a forceful evidence of the excellent collaboration between the Bank staff and Chinese forest experts and high-efficiency of the Bank staff. Furthermore, during the implementation of the project, all the rational requirements forwarded by Chinese managerial staff were responded promptly and problems resolved timely. No delay from the Bank staff was observed that affected the implementation of the project. 5.2 Rigorous supervision and monitoring It turned out that the rigorous supervision and management system of the Bank has been conducted effectively and successfully during the implementation of the project. Under the system, the Bank reviewed the regular documents submitted by Chinese part which included project annual plan, progress report, final accounting and auditing report, the progress report on technical extension, and various procurement documents; besides, the Bank supervision missions comprising the Bank staff and consultants with profound professional knowledge were sent to the project as agreed annually and at each stage of the project for field visit. Totally, in both the preparation and implementation periods, 20 Bank missions of 73 p-t were sent to China to conduct the strict checking and monitoring, which is a very important guarantee for the implementation of the project to follow closely the agreed plan and objectives. 5.3 Elaborate guidance and conscientious assistance The successful implementation of the project with its reputation at home and abroad is to a large extent due to the guidance and assistance of WB. As early as the preparation period of the project, considering that it was the first time for Chinese forestry sector to carry out such a big Bank loan project, WB sent a 8-member preparation group comprising consultants in a variety of fields such as: economy, seedling, silvicultural technology, environmental protection, etc. to help successfully Chinese forestry sector with the feasibility study of the project. During the implementation period of the project, Chinese forestry sector showed the weakness in seedling production. To this end, WB invited an experienced British seedling specialist to provide particular guidance for the project seedling production. Moreover, many useful recommendations and suggestions were proposed for implementing the project. Under the guidance of these Bank consultants, scientific methodologies have been introduced into project activities including establishing plantations in a lower density, rational site preparation, scientific fertilization on younglings, checking of differentiated level of young trees with the method of discrete level and rational seedling culling by means of normal distribution, all of which have produced outstanding effects upon the high level of project management, resulting in the success of the project. - 67 - 5.4 Flexible and pragmatic cooperation It has taken a decade to prepare and implement the project, during which 3 Bank officials were in succession, responsible for the project, Mr. Horst Wagner, Ms. Victoria Elliott and now Mr. Richard Scobey, all of them shared the same high sense of responsibility for China's forestry project and cooperated very well with Chinese colleagues. During the preparation and implementation of the project, not only had they ensured the agreed objectives, principles and relevant provisions and regulations to be closely followed, but listened carefully and patiently to the report of the problems whatsoever emerged in the project activities given by the Chinese colleagues and adopted as many proposals adaptable to China's practical reality as possible to ensure the smooth implementation of the project. For example, the timely approval of the reallocation of fundings among the credit categories and the readjustment of unit cost of plantation establishment proposed by the Chinese staff based on the change in foreign exchange rate and the price rising made the use of funding in credit categories more rational, and the higher quality of the establishment was guaranteed without being affected by inflation. - 68 - Part VI Post-Project Operational Plan 6.1 General requirement There are arduous works to be done dealing with the tending and management of young plantations and debt repayment after the completion of the project. The whole work should be conducted around focuses of quality, benefit and debt service with 4 principles to be followed: the principles of quality and benefits in priority, establishing rational ratio between input and output, combining effectively the technical measures with those of administration and policy, and giving full play to the role of the project afforestation entities with the assistance from other units. In line with the design of the afforestation models by species, the post-project management would last from 1998 to 2014, totally 17 years. 6.2 Objectives and tasks 6.2.1 The objective of the post-project management is to strengthen and extend achievements of the implementation period by trying best to realize the goal of over 90% of the project stands meeting or exceeding the incremental target of the designed afforestation models to improve the economical benefits for timely, sufficient debt repayment. 6.2.2 The tasks of the post-project management are: (a) to carry well out the tending management of project stands and three preventions works (prevention of forest fire, pest and disease, timber theft and livestock damage); (b) to mobilize adequate funding to support the post-project work; (c) to strengthen the afforestation unties to ensure that the economic benefits could come to the project beneficiaries in line with the agreed ratio; and (d) to collect sufficient proceeds to ensure the timely debt repayment. 6.3 Methodology and measures 6.3.1 To strengthen the management of yonglings of the project so that the achievements in plantation establishment would be consolidated. * A classified management has been practiced based on the findings of the general survey of project plantations of Class I , Class II and Class III in 1997. Besides, in accordance with the operational program developed by each project province based on the principle set by PMC of "retaining the level of the Class I, transferring the Class II to the Class I and rescuing Class III", supervision would be conducted to ensure the activities conducted with strict observance of the program. * Revise the post-project technical measures in afforestation models and prepare improved technical operational guidelines. At present, revisions should-be made in schedule and density of thinnings as well as tree pruning. To this end, (a) project provinces and autonomous regions should be organized to sum up the experiences of thinning conducted in 1995 and 1996, to revise the schedule and density in the thinning program; (b) The "Pruning Technical Guideline" dated 1996 should be further improved in the light of the implementation in recent two years; and (c) PMOs at all levels should be supervised in the preparation and implementation of the post-project management and training program regarding thinning and pruning to make sure that all the afforestation entities are able to master the said two key techniques. * Strengthen the regular management of yonglings to avoid the nature hazards as well as harms created directly by human factors. The main task of the regular management of yonglings following - 69 - project implementation is the "Three Preventions". To fulfill the work, PMOs should be caused to turn over these responsibilities to forestry sectors at corresponding levels as their regular work with the staff and funding managed by these forestry sectors. 6.3.2 Further implementation of the existing forestry policy is needed to finalize the process of afforestation entities into self- management bodies. * Stabilize and further improve the afforestation entities. Of all the shareholding forest farms, collective forest farms, state forest farms, and individuals, the focus of the work should be laid down on the stabilization and improvement of shareholding forest farms and individuals in the land tenure of their planted area together with the benefit allocation program to ensure the final success of the project. * Encourage compensable transfer of project plantations. Suggestions or help should be made to the department of laws and regulations in forestry sector to set up policies allowing compensable transfer of the standing stock of project plantations by the afforestation entities, and joint management between the afforestation entities and big industrial enterprises by taking the project plantations as raw materials. * Strengthen the monitoring of the dynamic of timber market. Assistance should be provided to the project afforestation entities in the revision of the tree cultivation targets. To this end, regular contact with timber market supervision departments at corresponding level should be enforced by PMOs. Meanwhile, information concerning the trend and projection of timber marketing, as well as the appropriate cultivation target of each planting species should be timely informed down to the grassroots afforestation entities for their timely awareness of the market trend and adjustment of cultivation target. 6.3.3 Adequate funding should be mobilized to guarantee the smooth conduction of the post-project management. Based on the afforestation models, the post-project management will be from 1998 to 2014, during which 2 billion yuan will be needed. As planned, the majority of the fund would come from the afforestation entities while small portions from the allocation of the forestry sector and forestry loan with subsidized interest. 6.3.4 Timely repayment of the project loan in line with the debt service arrangements of the project. Collecting the proceeds for repayment of project loan would be conducted based on the debt service arrangements made by MFO and each project province in the way that the lower level should be responsible for the upper level while the upper level should supervise and monitor closely the work of the lower level. The annual funding will be collected to ensure the smooth, prompt repayment. - 70 - ANNEX B: ICR MISSION'S AIDE-MEMOIRE 1. A World Bank mission comprising Victoria Elliott, Norman Jones, John Tumbull and Zhou Weiguo, accompanied by Tom Brummer, who looked mainly at FRDPP plantations, visited China for varying periods between May 12 and 30, 1998 to prepare the Implementation Completion Report (ICR) for the National Afforestation Project (NAP). The mission sincerely thanks the PMC and CAF and the provincial and county PMOs in Zhejiang, Jiangxi, Liaoning, and Fujian for their excellent arrangements, frank discussions and warm hospitality. This brief aide-memoire records the main findings of Ms. Elliott and Mr. Tumbull. (Messrs. Jones and Brummer may present some findings separately when they return from the field.) 2. The purposes of the ICR are to: * extract lessons from experience to improve country strategies and project design in future; a encourage the Bank and the borrowers to do a self-evaluation of the impact of their work; * provide accountability to Bank shareholders about the use of IBRD/IDA funds, and * maintain a record of the implementation experience of projects to help assess development impact. The ICR consists of the borrower's report and the ICR mission's report. We will transmit the full report to Chinese authorities within two months. 3. As is well known, the NAP has exceeded its objectives and is considered one of the most successful of the World Bank's projects in China. The mission was delighted to observe the outstanding quality of the plantations and nurseries. The preliminary re-estimate shows both ERR and FRR slightly higher than estimated at appraisal. The Implementation Completion Report prepared by the PMC -- on the basis of contributions from participating provinces -- provides a thorough and thoughtful assessment of the project's achievements, impact, and future sustainability. The mission looked particularly at four issues: the management of NAP-financed plantations between now and final felling; the impact of NAP improvements on forestry activities outside the project; * future directions of forestry research. * future flow of investment into commercial forestry. 4. Looking forward to the continuing management of the NAP plantations and related plantation activities in FRDPP, the mission sees two challenges. * As markets and prices for wood products constantly change, the Afforestation Entities need to adjust their thinning and harvesting regimes so as to maximize productivity and income. The PMC and PMOs should consider how to assist AEs to interpret - 71 - market information and to adjust their thinnings and rotations accordingly. They should also help the AEs choose species for replanting after final harvest. The plantations clearly show the benefits of NAP's significant silvicultural improvements, but a few issues may require attention. For example: * The research on planting densities suggests that the Chinese fir plantations planted in 1991 and 1992 might be even more productive if thinned immediately to lower densities than originally planned, i.e. without waiting for thinnings to reach commercial size. * Some variation was observed in the plantations in Liaoning that might have been caused by the way the seedlings were handled during transplanting. The Jiangxi PMO has developed useful guidelines on seedling handling that could be more widely disseminated for use in FRDPP and other planting programs. * Although there has been some increase in the number of Chinese fir, poplar and eucalyptus clones in use, it is important to keep this number steadily increasing. 5. Looking at NAP's impact on non-project activities, the mission has two observations. * PMC and the PMOs have introduced many effective management techniques that were not formerly used in forestry. They include: monitoring and quality control of plantations and planting material; data management; the use of economic analysis for investment allocation; financial management; the effective use of training and study tours; team-building and delegation. These deserve to be further disseminated so that they will be widely used even after FRDPP is completed. PMC should consider how to assist provincial and county forestry bureaus, silvicultural companies and other entities to adopt these techniques systematically to all commercial forestry programs, adapted as appropriate to lower-potential sites and lower-intensity silvicultural practice. To do this, PMC could perhaps consider providing consultancies, sub- contracting or other types of partnerships. * In some counties or provinces, the NAP/FRDPP organizational units are working alongside regular forestry bureau units. It is time to consider how to eventually integrate these two systems, so that the silvicultural and management improvements of NAP/FRDPP become the "mainstream" of plantation activities. 6. Research. Most of the research results incorporated into NAP guidelines were based on research conducted before NAP started. Before NAP, there was no clearly defined extension mechanism with appropriate incentives, and this had inhibited the application in plantations of these new science-based technologies. The NAP specifically provided this mechanism. Results of research conducted during the 1990-1995 are starting to be applied and will progressively make an impact on afforestation practices and outcomes. The greatest gains from' research in NAP have come from the application of the results of tree breeding. Gains in the quantity and - 72 - quality of wood have been very significant for all species included in NAP. The substantial improvement in plantation productivity could not have been achieved without the application of correct species-site matching, better nursery management and plantation establishment techniques. The application of clonal technologies is a significant move in the intensification of practices to produce high yielding plantations. 7. The major impact of the NAP may not be from the higher productivity of the 1.3 million hectares of plantations it established, but rather from the changes it may have catalyzed in the way research findings are extended and applied in practice in the millions of hectares of plantations yet to be established throughout China. An important element of this was the creation of ten research groups in CAF accountable for synthesizing research results of operational value. Through direct contact with field foresters, researchers had both the mandate and the opportunity to work on high priority issues. These groups are continuing under FRDPP. However, for the longer term, CAF and State Forestry Administration (formerly MFO) need to consider permanent mechanisms to better link forestry research with operational priorities. A clearer view is still needed about how this experience can be applied in future and to the full range of research activities, because these aspects were not fully evaluated in the Implementation Completion Report on Research and Extension. 8. Investment Financing for the Future. NAP has shown that commercial timber forestry can be a profitable investment, as long as long-term financing is available and investment decisions are made on the basis of good market projections and rate-of-return analysis. To ensure that investment funds continue to flow to timber forestry in China, financing and taxation regimes need to be made attractive to investors, since commercial lenders generally do not provide the long maturities needed for timber plantations. Taking into account all taxes and fees, however, forest products now are typically taxed at the relatively high rate of about 30%. Available government financing generally carries subsidized interest rates but maturities that are too short for most timber crops. The SFA should, in the mission's view, undertake a major study of the incentive structure for investment in plantation forestry and prepare recommendations for improvements. NAP experience and analytical methods would provide valuable inputs to such a review. IEEE 22268 liE' 11;2' 11IA' 1 6' 18' 2 0' 122' ' 14'6' C H I N A s i NATIONAL AFFORESTATION PROJECT NEI MONGOL ' > JILIN LIAONING, HEBEI, AND SHANDONG PROVINCES -42~~ POPLAR I MSELNOSBROADLEAF SPECIES( 'Chfn'T 0 SELECTED TOWNS LiOBWOE' HEBEI ! RAILROADS RIVERS c-d DEANS CANAL 0Zh-ngjOk- __rIA ----PROVINCE BOUNDARIES -.-INTERNATIONAL BOUNDARIES BE"' SLOBENO 0 0 lEE 100 2900DM EOL KILOMETERREIN REP. OF Ihi, -d b, lfi~~~~~~~~ ~~.dd ~~~A'-ff .-I w* f., & ~~~~~~~KOREA Mi' ~ ION pn.p~,.dby Ph. 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