Document of The World Bank Report No. 15473-CHA STAFF APPRAISAL REPORT CHINA VOCATIONAL EDUCATION REFORM PROJECT May 16, 1996 Rural and Social Development Operations Division China and Mongolia Department East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (As of March 1, 1996) Currency Name: Renminbi Currency unit = Yuan (Y) = 100 Fen $1.00 = Y 8.3 $0.121 = Y 1.00 FISCAL YEAR January I - December 31 ACRONYMS AND ABBREVIATIONS CEP - Chinese Expert Panel FILO - Foreign Investment and Loan Office ICB - International Competitive Bidding LGCC - Local Government Coordinating Committee MOF - Ministry of Finance MOL - Ministry of Labor NCB - National Competitive Bidding NPSC - National Project Steering Committee PEdC - Provincial Education Commission PHRD - Policy and Human Resource Development Fund PIP - Project Implementation Plan PPAC - Provincial Project Advisory Committee PPIO - Provincial Project Implementation Office SAA - State Audit Administration SEdC - State Education Commission SGB - School Governing Board SIAC - School Industrial Advisory Committee SOE - State-owned Enterprise SPC - State Planning Commission SPPIO - School Project Planning and Implementation Office STS - Secondary Technical School SVS - Secondary Vocational School SWS - Skilled Workers School TTC - Technical Teacher Training College TTD - Technical Teacher Training Department VTE - Vocational and Technical Education VED - Vocational Education Department of the State Education Commission CHINA VOCATIONAL EDUCATION REFORM PROJECT CREDIT/LOAN AND PROJECT SUMMARY Borrower: People's Republic of China Implementing Agencies/ State Education Commission Beneficiaries: Provinces of Guangdong, Jiangsu, Liaoning, and Shandong Municipality of Tianjin Poverty: Not applicable. Amount: Credit: SDR 13.8 million ($20 million equivalent). Loan: $10.0 million equivalent. Terms: Credit: Standard IDA, with 35 years maturity including 10 years of grace. Loan: 20 years, including 5 years of grace, at the Bank's standard variable interest rate for currency pool loans. Commitment Fee: Credit: Standard Loan: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financing Plan: See Table. 3.3 Net Present Value: Not applicable. Map: IBRD 27782 Project ID Number: CN-PE-3635 一一户 CONTENTS 1. VOCATIONAL AND TECHNICAL EDUCATION IN CHINA ........... . ...... . ........ 1 A. Economic Growth in China and Labor Demand .................................................. I B. Implications for Vocational Training .................................................................. 2 C. China's System of Vocational and Technical Education .................................... 2 D. Bank Group Experience with VTE and Lessons Learned ................................... 8 2. PROJECT DESIGN AND PREPARATION ............................................................. 11 A . Introduction ....................................................................................................... I I B. Issues in Project Des ' ign .................................................................................... I I C. Rationale for Bank Group Involvement ............................................................ 13 3. THE PROJECT ................................................................................ . ......................... 14 A. Project Objectives ............................................................................................. 14 B. Project Monitoring ............................................................................................ 14 C. Project Description ......... ... ---* ... *"*** ... 15 D. Project Costs and Financing .............................................................................. 20 E . Procurem ent ....................................................................................................... 22 F. D isbursem ents .................................................................................................... 24 G. Accounts and Audit ........................................................................................... 24 H. Project Management and Implementation ........................................................ 25 I. Supervision ......................................................................................................... 28 J. Environmental Impact ........................................................................................ 28 4. BENEFITS AND RISKS ...................... . ..................................................................... 29 A . B enefits ............................................................................................................. 29 B . R isks ................................................................................................................... 3 2 5. AGREEMENTS REACHED AND RECOMMENDATION ................ . ................. 33 This report is based on the findings of an appraisal mission that visited China in January 1996 comprising: Jan Segerstrom, (EA2RS, Task Manager), Dingyong Hou (EA2RS), Gordon Hunting, Martin Godfrey, Bo Dahlborg, Rene Welter and Wenjin Wang (Consultants). Peer reviewers were Van Adams (AFTBR), Josephine Hykin (ASTHR), and Richard Skolnik (SA2PH). The Managing Division Chief is Joseph Goldberg and the Department Director is Nicholas C. Hope. - 11 - ANNEXES Annex 1: Key Performance Indicators...............................35 Annex 2: Some Economic Aspects of Vocational Education and Training in Project Provinces ............................... .......36 Annex 3: Project Implementation Schedule and Procurement Schedule . ..........46 Annex 4: Detailed Cost Tables....................................48 Annex 5: Project Implementation Chart ..................... ...........54 Annex 6: Organization Chart ............................ ...........55 Annex 7: Indicative Supervision Plan ................. ................ 56 Annex 8: Disbursement Schedule.............................58 Annex 9: Technical Assistance and Staff Training Terms of Reference and Training Programs ................................ .....59 Annex 10: Report on a Tracer Study of Graduates from Secondary Vocational and Technical Schools, January 1994.........................69 Annex 11: Selected Documents in the Project File ..................................81 TABLES IN TEXT Table 1.1: Profile of Senior Secondary Education in China .. .....................3 Table 3.1: Project Cost Summary by Component ......................20 Table 3.2: Project Cost by Expenditure Category ............2.........21 Table 3.3: Financing Plan.......................l..... ..............21 Table 3.4: Procurement Arrangements ..................................22 Table 3.5: Allocation of Implementation Responsibilities ............... .....26 MAP IBRD 27782 -1- 1. VOCATIONAL AND TECHNICAL EDUCATION IN CHINA A. ECONOMIC GROWTH IN CHINA AND LABOR DEMAND 1.1 China's transition from central planning to markets is taking place against a background of extraordinarily fast economic growth. Over the 1986-94 period, real Gross Domestic Product (GDP) increased at an annual average rate of almost 10 percent. Currently, with double-digit growth again in 1995, China is the fastest growing economy in Asia, the world's fastest growing region. Growth is particularly rapid in the industry and services sectors. Industry accounted for 47 percent of GDP in 1994, compared with 42 percent in 1990, and over the same period the share of the services sector rose from 31 to 32 percent. 1.2 Within industry, there is a shift towards internationally competitive, higher- quality and more technologically advanced products, reflecting increased exposure to international markets. Total merchandise export earnings were $121 billion in 1994, double their level of only three years earlier. The product and market structure of exports has been transformed. Manufactured goods accounted for 84 percent of merchandise export earnings in 1994, compared with 49 percent nine years earlier. About 30 percent of export earnings now comes from light industry: exports of electronics products alone were worth $8 billion in 1993, 18 percent more than a year earlier, and electronics accounted for over 5 percent of the value of industrial output. 1.3 Within the services sector, high-technology branches are growing particularly fast: in 1993, for example, the number of enterprises offering scientific, research and technological services was 85 percent higher than a year earlier. 1.4 A significant factor in the increased competitiveness of the economy has been the sharp rise in foreign direct investment inflows, principally to the manufacturing and real estate sectors. Gross foreign direct inwestment inflows grew from virtually nothing in 1980 to $34 billion in 1994, and now account for almost half of all such flows to developing countries. 1.5 Growth and structural change in the economy are reflected in the pattern of labor use. The share of the service sector in total employment rose from 18 to 23 percent between 1989 and 1994 while that of industry rose from 22 to 23 percent. During the same period, agriculture's share in employment fell from 60 to 54 percent. Compared with other advanced developing countries, China still has an unusually large proportion of its workforce in the agricultural sector, but the structure is changing rapidly. 1.6 The open unemployment rate is very small, reportedly only 2.6 percent in urban areas, and in the faster-growing regions, enterprises report shortages of labor, particularly -2- skilled labor. Real average wages rose at an annual average rate of almost 7 percent between 1989 and 1994. However, state enterprises still contain large reserves of surplus labor and productivity is low. Moreover, productivity increases in agriculture have rendered a large number of rural workers redundant. B. IMPLICATIONS FOR VOCATIONAL TRAINING 1.7 The rapid growth and structural change of China's economy, coupled with reform of its State-Owned Enterprises (SOEs), are placing major new demands on the skills and capabilities of its labor force and, hence, on the country's educational and training system. Chinese industrial and manufacturing outputs are increasingly geared to the export market, requiring higher quality and more technologically advanced products. The previously underdeveloped services sector, now expanding with particular speed, includes an increasing number of enterprises offering scientific, research and technological services. All this has created significant demand for well-trained technical staff, who have acquired their skills through preservice and inservice training. In 1993, an estimated one in 15 industrial workers was recruited during the past year; in the services sector, the ratio was probably one in ten. Inplant training alone is insufficient to cope with new recruits on this scale. At the same time, the industrial restructuring accompanying SOE reform, with the aim of creating more efficient and competitive enterprises, has major implications for worker training. As SOEs commercialize by, inter alia, shedding the 15 percent of their labor force (some 17 million people) that are redundant and demanding higher skills of the staff who remain, workers will need retraining to improve or acquire skills sought by the emerging market economy. Development of China's labor market, structural change in the economy, and reform of its uncompetitive and loss-making SOEs are therefore partly dependent on having an efficient, market-responsive skills training system. C. CHINA'S SYSTEM OF VOCATIONAL AND TECHNICAL EDUCATION 1.8 As shown in Table 1.1, about half of all senior secondary school students attend vocational and technical (VTE) schools, making this a highly important part of China's educational system. The prominence given to VTE results from educational system reforms first articulated in 1985 and iriTroduced in 1987. These reforms were aimed at equipping about half of all secondary school graduates with practical job skills, and the remaining half, who attend general secondary schools, for general employment and for further education. In addition to enrollments in full-time courses of two, three and four years' duration, the VTE secondary schools have substantial enrollment in short courses for inservice training and for specialist preemployment training. -3- TABLE 1.1: PROFILE OF SENIOR SECONDARY EDUCATION IN CHINA General Data (1994) STS SVS SWS Secondary Total Number of Schools 3,987 10,217 4,430 14,242 32,876 Student Intake 1,225,000 1,468,000 714,000 2,434,000 5,841,000 Enrollment 3,198,000 3,426,000 1,871,000 6,649,000 15,144,000 Graduates 503,500 938,200 496,500 2,093,021 4,031,221 Source: China: Education Statistical Yearbook 1995. 1.9 VTE is provided by both the State Education Commission (SEdC), in charge of Secondary Technical and Vocational Schools (STSs and SVSs) that provide mainly preservice training, and the Ministry of Labor (MOL), which oversees Skilled Workers Schools (SWS), providing training at secondary level. The STSs are largely engineering trade schools responsible to the relevant technical bureaus. A decreasing portion, now about 60 percent of their graduates, are assigned to jobs by the local government; the balance find employment on their own. The SVSs are for the most part managed and financed by local education bureaus. SVS graduates find their own employment in the emerging labor market. Finally, SWSs are managed by local labor bureaus, technical bureaus and enterprises. The recently approved Bank Group supported Labor Market Development Project (Ln. 3967/Cr. 2800-CHA) focuses partially on inservice training; more detailed information on that segment of the VTE system is provided in the related Staff Appraisal Report (No. 14602-CHA). The proposed project supports a complementary effort for SEdC schools. 1.10 Links with employers are strong, particularly for STSs and SWSs because of their cooperation with technical bureaus and SOEs. The labor market is only now emerging, and, although the central assignment of graduates from STSs and SWSs to jobs in SOEs is being abolished, students who are sponsored by SOEs and local governments are committed to employment under terms of agreements that are often between the school and the enterprise or local government. It is reported, however, that opportunities for graduates to choose their employers are increasing. There are also high proportions of fee-paying students in STSs and SVSs who are not committed to any employer. Employment of VTE graduates in the rapidly developing, particularly coastal, provinces is high, with the schools unable to satisfy the demand of employers for the numbers of new employees required. 1.11 Since 1980, there has been a dramatic increase in the volume and proportion of VTE students. Enrollments in STSs increased from 1.24 million in 1980 to 3.2 million in 1994, an average annual increase of about 10 percent. SWS enrollments went from 0.7 million to 1.87 million, increasing again at about 10 percent a year, and SVSs grew from 0.45 million in 1980 to 4.06 million in 1994, expanding at some 17 percent annually. From 1980 to 1994, the enrollment in general senior secondary schools dropped by 2.3 percent a year from about 9.7 million to 6.65 million, due to the conversion of general -4- secondary schools into vocational schools. In terms of growth, the SVSs are clearly the most dynamic type of schools, reflecting the local government's responsibility for their development and freedom from the constraint on STSs and SWSs of admitting assigned students for guaranteed employment. 1.12 The reorientation of vocational education enrollment to the service sectors may accurately reflect employment needs, but also the low capital cost of mounting nontechnical courses. While surveys of selected areas indicate that graduates of SVS programs have found employment in new, emerging enterprises, an effective system is needed to monitor labor market trends to ensure that enrollments are adjusted to demand. With an estimated net annual growth rate of employment of 2 percent in China, total employment of 615 million in 1994, and a net annual increase of 12 million jobs, the 2 million VTE graduates annually represent a relatively large proportion (17 percent) of new job applicants. Hence, a slowdown in economic and employment growth could lead to a misT.atch of skills and unemployment among graduates. An improved labor market information system will be tested under the Labor Market Development Project, and school-level systems for this purpose would be introduced under the proposed project. 1.13 Private higher and secondary-level VTE has been officially encouraged since 1993. Based on information provided in a 1994 SEdC report, about 2.5 percent of SVS enrollment was in private institutions, mainly in urban areas. 1.14 Gender differentiation does not appear to be a serious issue in VTE. Both SEdC and MOL guidelines specify that males and females be recruited and enrolled on equal terms, on merit, and without fixed ratios. Data indicate that females comprise close to 50 percent of total enrollments in STSs and SVSs. The female graduates would not be expected to encounter gender-based discrimination in hiring since Chinese society encourages women to participate equally with men in all employment fields. Regulatory Framework for Vocational Education 1.15 Overall policy and strategy for VTE is set by the SEdC, while the main responsibility for management of the system rests with the provincial, county/city and district level governments. SEdC employs a number of tools to implement policy, including: (a) the setting of broad targets, such as the proportion of senior secondary students to be enrolled in VTE; (b) provision of standards for staffing, including numbers, qualifications and experience; (c) preparation and publication of guidelines for curricula for the main subjects, standard lists of practical exercises to be performed and lists of equipment to be provided in each specialization; and, most notably, (d) targets for the establishment of key schools at local, provincial and national levels, with criteria to be met for the adequacy and quality of facilities, staffing numbers and qualifications, etc. Provincial and local governments and the schools appear to give very high status to recognition of a school as a key school, particularly at the national level. This encourages investment and development to meet the criteria. SEdC provides only limited funding; however, it does control indirect funding from international bodies like the World Bank. -5- The proposed project would support development of 82 local-level key schools, with the aim of their becoming provincial or national key schools. 1.16 SEdC controls the development of vocational education through issuance of regulations and guidelines. A vocational education law is expected to be enacted in 1996, which would be expected to establish the framework for a comprehensive vocational education system, embracing: clear responsibilities for funding; encouragement to enterprises to give more attention to training; raising quality of VTE; establishing a national system of occupational classification and skills standards; and improving schools' linkages with government departments and enterprises. The law would be expected to also include penalties for violation. 1.17 Assessment and certification of trainees' competencies is currently carried out through a system of double qualification, combining a trades skills test administered by MOL and a technical certificate awarded by a vocational school on the basis of a school examination. The National Vocational Skills Testing and Guidance Center is being strengthened and skills testing centers are being established in selected municipalities under the Labor Market Development Project. System Financing and Costs 1.18 VTE schools have various sources of financing. While capital costs are normally provided by local governments, a survey of schools to be included in the proposed project, representing institutions that already have fairly high standards, indicates that the schools obtain an average of about 53 percent of their current funding from government through a variety of agencies, almost entirely provincial and subprovincial, 14 percent from enterprises, 24 percent from tuition fees, and 9 percent from their own production activities (Annex2). SVSs, which obtain only 48 percent of their current finance from government, get 28 percent from tuition fees, while STSs are more reliant on government funding (59 percent) but also attract a higher proportion from enterprises (17 percent). Cost recovery for nonacademic specializations is high. 1.19 The same survey gathered data on school costs. Unit recurrent costs for 1993/94 averaged Y 2,540 per year per student for-STSs, Y 1,590 for SVS, and Y 1,574 for SWSs. Capital expenditures in 1993/94 averaged about Y 2,100 per student. Most of this investment was for buildings. The average expenditure on equipment was only about Y 300 per student. Since appropriate equipment is crucial to better quality and expanded areas of technical training, equipment comprises a large part of the proposed project's inputs, and it is estimated that the project investment for equipment would amount to an average of Y 1.100 per student per year for project schools. System Strengths and Weaknesses 1.20 Strengths. The current VTE system has strengths and weaknesses. On the positive side, its external efficiency appears high compared to the situation in most developing countries. Almost two thirds of schools obtain regular advice from -6- employers, usually through their membership in school management and/or advisory committees, and links with non-SOEs are increasing. In the proposed project provinces, graduates obtain employment immediately after graduation, and employers, who sponsor a substantial proportion of students, report a demand for more graduates than they are able to obtain. A tracer study carried out in 1993, as part of project preparation, found that the proportion of graduates (three cohorts out of school for a year or more) who had been promoted or changed jobs was unusually high, and that earnings compared favorably with national averages. 1.21 The availability of school-based employment information is also better than in many countries. Secondary VTE schools in China regularly collect a great deal of information about their graduates. Questionnaires are either sent to enterprises, and filled in by the graduates/employees themselves and/or by their supervisors, or administered by interview. Questions cover employers' assessments of the skills and attitudes of graduates and advice to the school, graduates' assessments of the relevance of their training, and the extent to which they are working in the occupations for which they have been trained. Response rates are very high, between 95 and 100 percent. The results are taken seriously by the schools in deciding on changes in courses, curricula and syllabi. This current practice is an excellent basis for the expansion and further development of a school-based labor market information system adapted to a reformed labor market in which graduates find jobs through other means than government allocation. 1.22 Weaknesses. While external efficiency is good, internal efficiency of the VTE system is far less satisfactory. Improvements are needed in the qualifications of teaching staff and school managers, training programs and instructional methods, and physical facilities (buildings and equipment for laboratories and workshops). Adequate utilization of staff and physical resources is impeded by low school enrollments, too few part-time and short courses, and low teaching hours per week. In addition, links between schools and prospective employers should be further strengthened, with the aim not only of making training programs responsive to market signals but also to attract more financing of training equipment and other inputs needed for more technically sophisticated training geared to emerging industrial needs. With respect to teaching staff, the majority lacks industrial experience and also relevant technical skills. In many cases, teaching methods, particularly in terms of practical applications, are outmoded and in urgent need of upgrading. Teacher recruitment does not seem to present a problem, indicating that teachers' salaries and working conditions are competitive. 1.23 Government policy calls for the introduction of competency-based and modular programs. However, this has not been fully implemented, and established courses need to be substantially updated to suit the needs of modern industry. 1.24 Instructor training at Technical Teacher Training Colleges (TTCs) and Technical Teacher Training Departments (TTDs) of universities also needs upgrading. Training programs are typically for four years, and entrance to the schools requires completion of senior secondary school. Although past recruitment to the programs was -7- almost exclusively from academic schools, Government policy now requires an increasing portion of the new recruits to have secondary technical school qualification. However, curricula are theory-oriented and do not sufficiently emphasize practical topics and the integration between theory and practice. Nor do they include the necessary elements of teaching practice and industrial practice in support of other subjects. Trainers also have been recruited based on academic merit rather than industrial experience, practical skills and technical teaching experience. As regards inservice instructor training, some programs are offered at the TTCs and TTDs, but only a few of the key schools get involved in these activities. As many schools have the necessary equipment and sometimes potential trainers, it would be advisable to offer pedagogical and practical skills programs at this level to enhance the teaching skills of the large majority of less qualified instructors. 1.25 Improved integration of SEdC and MOL is needed at the central level and to a lesser extent at the provincial and municipal levels. In the long term, when the labor market has developed and needs have stabilized, some rationalization of the SEdC and MOL VTE systems would be advisable. However, at this stage in China's development process, the urgent need for better preservice training to meet the demand for technical and service sector staff, as well as stepped up inservice training to accompany enterprise reform make it advisable to retain and improve the capacities of both systems to serve their particular segments of the VTE sector, albeit with an enhanced dialog on major policy issues. Government Policy for Vocational Education 1.26 The Government's goals for VTE include the reform of the system to accommodate the needs of structural reform and development of the labor market, to respond to the needs for both inservice and preemployment VTE, and to serve the tertiary sector and private enterprise. In line with these goals, SEdC's policy for reform addresses the key sectoral issues discussed earlier. Having achieved a balance between general and vocational education, SEdC is now pursuing the following reforms: (a) continued decentralization of school management to the local authorities and to the schools to encourage a flexible response to changing demand for training, and encouragement of greater participatiorof enterprises in the operations of the schools, including increasing their contribution to the financing of training; (b) establishment of flexible training programs and school-run admission policies to meet employment needs; (c) abolition of the job assignment system, replacing it with an effective job placement system for school graduates; (d) establishment of a network of relatively large, efficient, broad-based key or model schools, based on the combination or replacement of groups of existing small specialist schools; and (e) upgrading of the quality of the model schools, and ultimately the system, by providing adequate equipment and a better teaching staff Implementation of reform also translates into a need for curriculum development to ensure that training programs meet the skill needs of industry, and improved instructor training so that VTE teachers are better equipped in terms of their industrial experience, up-to-date subject matter knowledge and relevant pedagogical skills. Through continued -8- decentralization of responsibility, school principals and managers will be in a better position to utilize available resources efficiently and to strengthen linkages with employers so that programs meeting immediate demands for skills are prioritized. 1.27 These reforms appear to be well under way, as indicated by the results of surveys and tracer studies of selected schools in Beijing and the Provinces of Jiangsu, Hebei and Shandong for the period 1987/8-1992/3. The progress of reform is indicated by improved training delivery systems, formation of large schools from clusters of small schools to realize economies of scale, and increased decentralization of management responsibilities, linkages with industry, and cost recovery through tuition fees and enterprise contracts. In some schools, as many as a third of 1992 graduates were sponsored by enterprises, and most graduates found jobs by means other than allocation. The proportion obtaining lifetime employment has dwindled (to 16 percent of graduates included in the tracer studies), and contracts are now the predominant hiring arrangement, particularly for SVS graduates. The proportion finding jobs in government administration and state enterprises was still high (69 percent) but falling; however, considering the vastly increased number of joint ventures since the time of this study, the number of graduates employed in nongovernment enterprises is now very likely much higher. This success notwithstanding, the scope of the VTE system, the rapidly expanding demand for skilled labor, and the rapid transformation in training needs require continuing reform initiatives. D. BANK GROUP EXPERIENCE WITH VTE AND LESSONs LEARNED 1.28 Worldwide experience of vocational education and training in developing countries was extensively studied and evaluated during the preparation of the Bank's Policy Paper on Training.' While experience from specific groups of countries may be of particular interest, as discussed below, the conclusions and recommendations of the Policy Paper continue to provide the main policy considerations and options relevant to reform VTE, particularly preemployment training for youth, which is the main focus of the proposed project. 1.29 The main thrusts of reform as proposed in the Policy Paper are as follows: (a) introducing market-oriented planningof training by using labor market signals rather than manpower forecasting; (b) mobilizing employer and private training and ensuring that training providers can compete under conditions which are fair to both private and public providers; and (c) making public training more responsive and efficient, and diversifying sources of funding for publicly provided training. These policy directions have been fully considered in the design of the proposed project, taking into account the specific institutional and economic situation in China. 1 Vocational and Technical Education and Training. A World Bank Policy Paper (1991). -9- 1.30 The project also responds to lessons learned from previous Bank Group-assisted VTE projects implemented worldwide. Projects in Ecuador, Egypt and Mexico (see SecM94-0754, SecM95-0239, and SecM92-0117) highlight the need for strong links between VTE institutions and local employers to ensure the responsiveness of training supply to demand. The proposed project meets this criterion by being based on individual school plans developed in consultation with local enterprise representatives. Project support to the ongoing decentralization of China's VTE system is in line with a lesson learned in Egypt and Morocco (SecM95-0922)-that decentralization of training responsibility is one of the main ingredients for a flexible, responsive training system. The value of tracer studies, a lesson from our experience in Mexico, is also incorporated in the project, which would improve the monitoring and evaluation systems of participating schools with the intention, among others, of tracking trainees in their job performance. 1.31 Lessons have also been learned from the previous Bank Group-supported VTE project in China (Cr. 2114-CHA), which is scheduled to close at end-1996. The previous project assisted the development of about 60 SEdC and MOL secondary VTE schools in selected provinces, to act as models for fiurther development, by providing facilities and equipment, improving teaching materials and providing staff training and technical assistance. Implementation has been largely as envisioned, and a 1995 review of the project by SEdC highlighted some of the project's positive results. Internal efficiencies of the schools improved, with higher student-teacher ratios and increased enrollments. Sixteen of the schools have been designated as "national key schools." School financing also diversified as a result of substantially increased income from tuition and school- owned enterprises. The schools' external efficiency also seems to have improved, judging from the increased fee income which can be regarded as a proxy for market success. On the negative side, the schools found some training and technical assistance offered under the project to lack relevance, and the project's goal of improving overall programs in schools spread throughout 17 provinces was overambitious. A more focused approach, in terms of both geographical coverage and subject areas, would have been preferable. The proposed project incorporates these lessons, and builds on the achievements of its predecessor. Technical assistance and training under the project would be delivered in a way that is preferred by the Borrower, that is, through a twinning arrangement with leading VTE institutions in Singapore, which has one of the most efficient VTE systems worldwide. This arrangement brings down costs, obviates the need for language training, and is perceived as being highly relevant to the Chinese context. In addition, school improvements would be targeted at only five geographic areas and to selected specializations for which demand is strong and potential financing sources for the specializations promise to be robust. 1.32 In addition, experience gained outside Bank Group projects has been noted, particularly that from other Asian economies, considered more relevant than Eastern Europe and the former Soviet Union, which have been grappling with severe economic recession and widespread unemployment. The rapid industrial development which has taken place in Asia in the past 15 years has, without exception, been supported by well- -10- functioning and integrated vocational training systems. In the cases of Singapore, Korea and Hong Kong, the close linkage between the VTE system and employers in industry has contributed greatly to rapid development and quality improvement. China's best policy is to follow the same route, and it could clearly benefit from drawing extensively and in detail on the experience of those nearby countries. 2. PROJECT DESIGN AND PREPARATION A. INTRODUCTION 2.1 As is typical of all economic and social reform efforts in China, changes in China's VTE system are being introduced gradually, and only after extensive piloting of new measures. The Bank has been assisting the pilot efforts through the previous VTE project, the proposed project focused on SEdC, and the recently approved Labor Market Development Project, supporting MOL in testing the impact on labor market development and labor mobility of improved employment and training services and an enhanced policy and legal framework for workers and employers. The proposed project would be a pilot program to complement the latter effort by testing the impact on training efficiency and effectiveness of improved curricula, teacher training and a package of institutional and management improvements in what is still the main conduit for VTE training, the SEdC-run secondary schools. Since the existing system's links with industry are now often with SOEs, the project would also help the SEdC schools forge new ties with additional nonstate enterprises and develop new skills training programs for the nonstate sector. 2.2 The project aims to improve the management of the participating institutions, including the setting up of mechanisms to obtain and use labor market signals in the running and fine-tuning of programs, improving links with industry, increasing income from sources other than education budget allocations, and devolution of responsibility to the schools under clearly defined terms of accountability. Within the selected specializations, which cover both manufacturing and services sectors, there would be a program of curriculum development, with a modular structure and competency-based course system. B. ISSUES IN PROJECT DESIGN 2.3 The proposed project is consistent with economic principles and equity considerations. It does not jeopardize the growth of emerging, privately operated VTE institutions; it complements employers' training efforts; and it will indirectly increase demand for less skilled workers by contributing to enterprise growth. Level Playing Field 2.4 Government intervention in training usually has to be justified by the identification of market failures of one kind or another. In China, the context is very different: it is not so much that the market is failing as that it does not yet exist. The question then becomes whether to move towards markets by building on what already exists or by destroying and replacing it. The logic of this project is to build on what -12- already exists, reforming the public VTE system, which is large, experienced and linked to enterprises, so that it can become self-supporting and responsive. At the same time, the aim is to avoid crowding out the private training institutions which are beginning to emerge in the larger cities but are still few, weak, and mainly confined to quick-profit, low-investment and short-course specializations. A level playing field in this context does not imply a complete absence of subsidy to secondary vocational and technical schools: the general-education part of the curriculum is still a proper state function. The schools are already raising 42 percent of their current funding excluding production income and expenditure from nongovernment sources; hence the playing field is very nearly level and it will become more so during the course of this project. Precareer vs. Employer Training 2.5 The public VTE system has a high share in precareer training and China's special situation in this respect has to be recognized. Extraordinarily fast growth, together with structural change and upgrading of technology and product quality, means that vast numbers of new skilled workers are demanded each year. Inplant training alone is unable to cope with imparting skills to new recruits on this scale; it needs to be supplemented by offplant, precareer training. In any case, as full cost recovery for VTE courses becomes the norm, enterprises will be able to choose between precareer and inplant training on rational cost/benefit grounds. Training and Equity 2.6 A condition for obtaining a high rate of return on investment in training is that demand for trained persons should be high. This is the logic behind locating the proposed training project in five of the country's highest-income and fastest-growing areas. This, almost by definition, implies that the project will not be an instrument for direct improvement of equity. The impact of the training on equity will be indirect. By relieving skill constraints to expansion of higher-quality output and exports, it will generate increased demand for less skilled workers also. As already emphasized, China is still a surplus-labor economy. The boom in the coastal provinces is based primarily on labor released from rural areas, often from beyond those provinces' borders. For instance, nonagricultural employment ln Shandong and Guangdong grew at an annual average rate of 5 percent and 7 percent, respectively, between 1989 and 1994, to the benefit of millions of unskilled recruits from poorer families. One effect of the project will be to make a small contribution to the continuation of this process. Project Preparation and Stakeholder Participation 2.7 The project was prepared by the Government with Bank Group assistance using a bottom-up approach with emphasis on participation from candidate provinces, local government administrations and schools. Project provinces were selected using criteria focusing on the presence of rapid industrialization, employment-driven demand, and commitment to plan and manage the reform of vocational education. Information on the areas selected, the Provinces of Guangdong, Jiangsu, Liaoning and Shandong and Tianjin - 13 - Municipality, is provided in Annex 2. Selection of participating schools and institutions was the responsibility of the provinces based on agreed criteria including: (a) registration as local-level key schools, (b) potential to meet local labor market needs, (c) existing enrollment of at least 1,000 students with plans to increase to about 2,000 over five years, (d) reasonable teaching conditions and competent management, and (e) demonstrated potential to meet project objectives and to support sustainable development beyond the duration of the project. 2.8 Each potential project school prepared a development plan covering: (a) baseline data on students, teachers, courses, and facilities; management, expenditure and financing, linkages with industry, and employment outcomes of courses; (b) plans for development over the next five years guided by the agreed reform agenda, including new courses, additional facilities to be acquired, proposed management development, staff development and training requirements; and (c) the implications for capital investment and recurrent costs. About 25 percent of the 82 project schools were visited by the preappraisal mission for detailed evaluation of their plans, and subsequently the Provincial Education Commissions and SEdC revised and consolidated the plans to provide the basis for project design in the form of a Project Implementation Plan (PIP). The preparation was financed by a grant from the Government of Japan. The PIP and development plans for all project schools are in the Project File (Annex11). C. RATIONALE FOR BANK GROUP INVOLVEMENT 2.9 The proposed project is consistent with the Bank's Country Assistance Strategy (CAS) for China, which was presented to the Board on June 1, 1995 and reaffirmed on March 26, 1996. That strategy has as its ultimate objective to assist the Government in developing the institutions and instruments necessary to sustain rapid growth and broad- based development. By pilot testing crucial improvements to the quality and market- responsiveness of the country's vocational and technical secondary schools, the project represents one building block in developing a labor market in China that can provide well trained workers in the skills most sought by the market. And, since the project schools also provide inservice training and other types of adult education, including training programs directly contracted with employers, the project supports the Bank's emphasis on helping the Government reform its state-owned industries by facilitating labor mobility. Workers needing enhanced skills as enterprise reform continues will be able to get the training required at the model VTE schools to be developed under the project, or at schools replicating these reforms. As such, the project complements other investment and technical assistance operations outlined in the CAS for industrial restructuring, vocational training and economic law reform, all geared to establishing a comprehensive framework of the basic policy and investment measures required to promote enterprise reform throughout China. In particular, the project draws on two important Bank sector studies: the 1992 study on China's urban employment and wage system, which produced an action plan for employment and wage reforms (Report No. 10266-CHA) and the 1993 study on the employment and training implications of enterprise reform (Report No. 1 785-CHA). -14- 3. THE PROJECT A. PROJECT OBJECTIVES 3.1 In support of labor market development, economic restructuring, and SOE reform, the proposed project would: (a) improve and increase the supply of skilled labor to meet labor market demands; (b) raise the quality and efficiency of the vocational education and training system; and (c) build up capacity for monitoring, evaluation and dissemination of pilot experiences and replication. B. PROJECT MONITORING 3.2 Progress in achieving the project's development objectives would be monitored on the basis of impact and outcome indicators shown in Annex 1. These indicators would be derived from a subset of detailed indicators at project and school level, measuring outcomes and impact and would be consolidated by each province and submitted to the center. The physical progress of implementation would be monitored against annual implementation plans to be prepared by the provinces/municipality and participating schools. Key overall indicators would include the following: (a) Project effectiveness in increasing the supply of skilled labor (i) Percent of graduates from project institutions employed six months after graduation (ii) The average salary of graduates compared with workers of a similar age who have not received preservice training (b) Improved quality and efficiency (i) Percent of project-schools attaining National Key School Status (c) Enhanced monitoring, evaluation and dissemination (i) Number of project provinces preparing annual VTE plans based on cost and outcome analysis (ii) Percent of schools with fully operational tracer studies/feedback systems 3.3 At the school level, the chief monitoring parameters and indicators would be: (a) Improved school management and efficiency - 15 - (i) Average unit cost per trainee year compared to nonproject schools (ii) Percent utilization of labs/workshops compared to nonproject schools (iii) Percent financing from industry and tuition fees (iv) Ratio of trainers to administrative staff (b) Improved market-oriented planning and links with industry (i) Percent of project school graduates employed in joint venture or (private) town and village enterprises (ii) Average starting salary of project school graduates compared with - vocational schools at the same level During negotiations, assurances were obtained that the participating provinces/ municipality and schools would prepare semiannual project progress reports, which would be submitted to SEdC. SEdC would consolidate these reports and submit the overall report to the Bank Group by April 1 of each year, reporting on the status of project implementation, including progress made with regard to the agreed monitoring indicators. In addition, an Interim Report would be prepared for each Bank Group supervision mission prior to its arrival. An implementation completion report, reviewing the planned objectives and project achievements, including costs and benefits derived, would be prepared by SEdC and submitted to the Bank Group no later than six months after the loan/credit Closing Date. C. PROJECT DESCRIPTION 3.4 The project, to be implemented in the Provinces of Guangdong, Jiangsu, Liaoning and Shandong and the Municipality of Tianjin, would have the following components: (a) Development of Key Schools for Vocational Education; (b) Improving Management and Planning of Vocational Education; and (c) Supporting Project Management. Development of Key Institutions for Vocational Education ($56.8 Million) 3.5 This component would support the development of 82 key secondary technical and vocational schools as models for upgrading the quality and efficiency of vocational education. Since the project input is relatively small, the revision and upgrading of training programs would be targeted to priority aspects of selected specializations. The upgrading would be achieved through an integrated program of: (a) course revision and curriculum development; (b) staff development and training; (c) international and - 16 - domestic technical assistance; and (d) the upgrading and equipping of laboratories and workshops. The assistance to each school would be based on a detailed plan, focused on one or two fields or majors which represent the priorities for local or regional economic development. The emphasis would be on the reform of training to make the system more flexible and responsive to changing employment demand and opportunity, in line with evidence from improved labor market information systems and strengthened links with industry. 3.6 The main thrust of development would be on the following sectors and specializations, which were identified by the locals schools and enterprises as priority employment skill needs: (a) electronics, electrical engineering (b) mechanical engineering, including machinery and automobile engineering (c) construction (d) light manufacturing industry (e) communications, road and traffic engineering (f) computer applications, information technology (g) chemical industry (h) tourism, including hotel services. 3.7 Over 60 percent of the specialized courses to be upgraded are in the fields of electronics, electrical engineering, mechanics, machinery, electromechanics and information technology, which cover the core skills for modem industrial development. Other main concentrations are 10 percent in construction, 5 percent in chemical processes, 6 percent in textiles and garments, and 8 percent in hotel services and tourism. 3.8 Enrollments in the training programs in the above fields in the project schools are expected to increase from about 42,000 to about 60,000 in full-time preemployment courses over the project period. A relatively larger increase is foreseen in enrollments in part-time and specialist short courses for retraining or skills upgrading of existing workers. 3.9 Upgrading of VTE Training Programs: Course Revision and Curriculum Development. The SVS and STS programs would be upgraded through the design, testing and implementation of selected new and revised course modules. The courses would be selected in accordance with their priority for economic development and employment needs. Modules of industrial practice would also be upgraded and included as an integral part of all vocational courses. The related system for examination of - 17 - students' attainment and competencies and the vocational qualifications and certification at national, provincial and school levels would also be critically reviewed and upgraded. 3.10 Staff Development. The skills and experience of teachers would be upgraded through a staff training program, which would be closely integrated with the course upgrading. Sixty key specialist teachers from the project schools in the majors of electronics, mechanics, electromechanics, information technology, construction and chemical processing would be trained overseas in three-month custom-designed courses, with a focus on modem teaching methods, particularly for laboratory and workshop teaching. The trained key teachers, after return to their schools, would continue the upgrading of courses, including curriculum development, preparation of teaching materials, laboratory manuals, computer-based learning materials and textbooks. Course development would be facilitated by a program of seminars and workshops, assisted by specialist consultants. Both consultants and trained key teachers would design and participate in the delivery of the domestic training program for other school teachers, which will also be based on the revised course materials and upgraded teaching methods. 3.11 Specialist teachers in other courses targeted for project support would be trained in domestic, custom-designed programs, using the experience and resources of selected schools and institutions assisted under the first Bank Group-assisted VTE project. The latter would be chosen to assist with staff training and course upgrading on the basis of their demonstrated successful development in the field, links with overseas institutions, and close association with international or joint venture enterprises in the sector. 3.12 Specialist staff in all targeted courses would participate in a domestic training program to include: (a) Modular programs for upgrading technical skills and training methods as well as enhanced refresher training in laboratory and workshop practical exercises and project work, particularly based on the revised courses and use of equipment procured under the project (para. 3.15). The program would be delivered in selected technical teacher training colleges and key schools, with participation and supervision of senior school staff, including the teachers who have been trained overseas; (b) Secondment or assignments for supervised training and experience in industry. This program would be designed and supervised at the provincial level by an advisory group comprising representatives from industry, the model schools and administrators; and (c) Comprehensive courses, of two to three years' duration, leading to professional qualifications, for selected teachers who were not able to secure a full degree before entering the profession. 3.13 Specialist Consultant Services. Specialists would be engaged to assist in improving courses and the related staff training in fields for which key staff would be - 18 - trained abroad; i.e., electronics, mechanics, electromechanics, information technology, construction and chemical processing. The specialists would guide the groups of key teachers, after return from overseas training, through programs of seminars and workshops for curriculum development and preparation of new teaching materials. They would also participate in the design and implementation of the domestic staff training program. The outline of the program for employment of specialists, their terms of reference, and criteria for selection were confirmed at appraisal (Annex 9). 3.14 The consultants and overseas training services would be provided, as far as possible, through links with vocational education systems in Asia where the Chinese language is commonly used. It is expected that these services would be provided under a twinning arrangement with institutions in Singapore, well-known for their successful VTE programs. Under these circumstances, SEdC has agreed to waive the normal requirement that candidates for overseas training pass an English language proficiency test. This decision would facilitate timely implementation of the project since that requirement has been an important factor in hampering implementation of overseas training in earlier projects. 3.15 Upgrading of Training Facilities. Laboratory and workshop facilities of the project schools would be upgraded through construction of new, and adaptation of existing, buildings and by the provision of appropriate, up-to-date equipment. Equipment to be procured under the project was selected by the project schools, under the guidance of an experienced panel of advisers and in light of experience gained in the procurement and use of equipment under the first Bank project in this subsector. The equipment lists for the schools and summary lists by province were reviewed by the Bank Group and found acceptable in terms of their appropriateness and recurrent cost implications. In terms of project investment per student, it would be about Y 1,100 per student per year in equipment compared to about Y 300 at present. Improving Management and Planning of Vocational Education ($1.0 Million) 3.16 Complementary to the upgrading of school curricula, instructor training and physical facilities, this component would improve planning and management of the system through provision of technical-assistance and management training, improved planning, linkages with industry and dissemination of best practices. 3.17 Management Improvements. The project would finance overseas study visits, domestic seminars and workshops to prepare school principals and other management staff to take responsibility for implementing the reforms at provincial and school level. The overseas training would comprise structured overseas study assignments, following custom-designed programs, for groups of selected managers and principals to examine international approaches and experience of key features of VTE management and development. 3.18 Reform of the VTE system would depend on improvement to the management system at provincial and school level and further strengthened links with employers in -19- accordance with central Government policy (para. 1.26). Since 1985, there has been remarkable progress in the implementation of the policy for vocational education, but as is the case for social sector development, provinces and also schools are moving at different pace primarily dependent on industrial development and demand for skilled manpower. In this context, this pilot project would contribute to achieving the overall reform goals and related actions and activities would be closely monitored by Bank supervision using, inter alia, the monitoring indicators as defined in para. 3.2. 3.19 This will include further decentralization of management responsibilities to encompass staff selection and recruitment, enrollment of students, curriculum and syllabi design and revision, utilization of staff and physical resources, and financial responsibility in accordance with annual budgets and plans. Monitoring and evaluation will play an important role in assuring quality and accountability and will include regular assessment of external and internal efficiency. For this purpose, the school-based labor market information system would be strengthened including tracer studies and feedback from employers to facilitate planning at the school and provincial level. 3.20 Planning Improvements. Planning for VTE would be improved through use of the monitoring and evaluation system described above and better use of available labor market information (LMI) in preparing annual and long-term (three-year) school and provincial-level VTE plans. Consultant services, staff training and seminars would be provided to develop a school-based LMI system. Building on already established practices, the project would assist participating schools to: (a) collect information from graduates on their labor market situation and earnings; (b) compare this information on outcomes with similar information from appropriate comparison groups to measure the impact of different types of training; and (c) analyze the cost of each course run by the school so that cost per student of each course can be calculated for comparison with impact. Procedures would be developed through which the criterion of cost per unit of impact is used, among others, in decision by schools on changes in curricula. The labor market information collected at the school level would be forwarded to the local government and provincial levels for planning purposes and dissemination of findings on the impact of training to potential trainees and employers. 3.21 Links with Industry. Links with industry would be formalized by establishing Industrial Advisory Committees (IACs) to ensure employer participation in the selection of courses and feedback on student performance following employment. Also, the introduction of School Governing Boards (SGBs) with industrial representation would assist in planning and management of schools and be responsible to the administering authority. 3.22 Dissemination. As part of the dissemination effort under the project, links between key schools and clusters of other vocational schools in the same community would be established to extend the experience of successful activities developed under the project through inservice instructor training; workshops and seminars on improved - 20 - systems and procedures for planning and management, course development and teaching methods, and sharing of specialists. Project Management Support ($0.4 Million) 3.23 In order to decentralize implementation responsibility, training would be provided for project management staff at the provincial and school levels. At the provincial level, this would mainly encompass general project management areas such as planning and coordination of implementation, financial administration, procurement, monitoring and evaluation, and project reporting. At the school level, training would emphasize monitoring of training program quality and efficiency, local staff development, and procurement of equipment and materials by national shopping procedures. Project management training and technical assistance would be provided by SEdC's Foreign Investment and Loan Office (FILO), which has long experience in implementing Bank Group education projects. Additionally, the specialist panels will contribute to selection of equipnient and appropriate staff development programs. D. PROJECT COSTS AND FINANCING 3.24 The total project cost is estimated at $68.4 million equivalent with a foreign exchange component of $14.0 million including contingencies. Taxes and duties of $0.3 million equivalent are included in the total cost. Base cost estimates reflect price levels prevailing in January 1996. The unit prices were derived from the following sources: (a) quotations obtained from manufacturers and suppliers; (b) prices of goods and works from recent contracts; and (c) construction costs according to prices published by the Central and Provincial/Municipal Governments, all adjusted for inflation. Physical contingencies of 5 percent were applied to the base costs of goods and the following price contingency rates were applied to all the components: for local expenditure: 10.5 percent for 1996, 8.5 percent for 1997, 7.0 percent for 1998, 6.5 percent for 1999 and 6.2 percent for 2000; for foreign expenditures: 2.4 percent for 1996 through 2000. The project cost summary by component is shown in Table 3.1 and project cost by expenditure category is presented in Table 3.2. The detailed cost summaries by province are presented in Annex 4. TABLE 3.1: PROJECT COST SUMMARY BY COMPONENT Y Million S Million % Foreign % Base Local Foreign Total Local Foreign Total Exchange Cost Development of Key Institutions 372.85 98.60 471.45 44.92 11.88 56.80 21 98 Improving Management & Planning 2.99 5.64 8.63 0.36 0.68 1.04 65 2 Project Management Support 2.79 0.45 3.24 0.34 0.05 0.39 13 0 Total Base Cost 378.63 104.69 483.32 45.62 12.61 58.23 22 100 Physical Contingencies 8.70 4.57 13.27 1.05 0.55 1.60 34 3 Price Contingencies 64.30 6.96 71.26 7.75 0.84 8.59 10 15 Total Project Cost 451.63 116.22 567.85 54.42 14.00 68.42 20 118 -21- TABLE 3.2: PROJECT COST BY EXPENDITURE CATEGORY ($ Million) Improving Project Development of Management Management Key Institutions and Planning Support Total Books and Materials 2.36 - 2.36 Civil Works 23.96 - 23.96 Equipment 39.56 - - 39.56 Foreign Consultants 0.46 0.32 0.06 0.84 Overseas Training 0.45 0.40 - 0.85 Local Consultants - 0.05 0.12 0.17 Local Training 0.43 0.01 0.44 Operations Support - - 0.24 0.24 Total 66.79 1.20 0.43 68.42 Taxes 0.31 - - 0.31 Foreign Exchange 13.22 0.72 0.06 14.00 3.25 The proposed credit of $20 million equivalent and loan of $10 million equivalent would together finance about 44 percent of total project costs, including 100 percent of total foreign exchange requirements, and about 29 percent of local costs net of taxes. The project provinces, Tianjin Municipality, and SEdC would contribute the balance and annually make budgetary allocations for the recurrent expenditures required during and after project implementation. A financing plan is shown in Table 3.3. Assurances were obtained at negotiations that the Borrower would make the proceeds of the Loan and Credit available to the project provinces and Tianjin Municipality on the following terms: repayment in 20 years with 5 years of grace, at an interest rate of 4 percent per year. The provincial/municipal governments would bear the foreign exchange risk and would relend the loan/credit proceeds to project institutions on the same terms. TABLE 3.3c FINANCING PLAN ($ Million) Local Foreign Total Percent Government of China 38.4 0.0 38.4 56 IDA/IBRD 16.0 14.0 30.0 44 Total 54.4 14.0 68.4 100 - 22 - E. PROCUREMENT 3.26 Procurement procedures and arrangements satisfactory to the Bank Group would be agreed with the project provinces/municipality. All procurement would be undertaken in accordance with the Bank's Procurement Guidelines, dated January 1995 and revised in January 1996. Procurement responsibility would be shared by FILO and the provinces/municipality. FILO, through its procurement agent-the China National Technical Import Company (CNTIC)-would manage procurement of goods under international competitive bidding (ICB) procedures and of international consultant services. CNTIC is an experienced and competent procurement agent that is familiar with, and has had recent and relevant experience in ICB on Bank Group-financed projects. The tender documents to be used in the project would be based on the standard bid documents prepared by the Ministry of Finance and approved by the World Bank Group. The provinces/municipality would handle all other procurement procedures, including national competitive bidding (NCB). The credit and loan would finance procurement of instructional equipment, computers, books, materials, international and local consultant services and training. The Bank Group's standard documents would be used for all procurement procedures. Expected procurement arrangements under the project are summarized in Table 3.4 and given in detail in Annex 3. TABLE 3.4: PROCUREMENT ARRANGEMENTS ($ million) Procurement Method International National Competitive Competitive Bidding Bidding Other /a NBF 1h Total Civil Works - - - 23.96 23.96 Equipment 9.64 27.94 1.98 - 39.56 (9.64) (16.53) (1.38) (27.55) Books - 2.36 - - 2.36 (0.70) (0.70) Consultant Services - 1.01 - 1.01 (0.94) (0.94) Training - 1.29 - 1.29 (0.81) (0.81) Operations Support - - - 0.24 0.24 Total 9.64 30.30 4.28 24.20 68.42 (9.64) (17.23) (3.13) (30.00) /a Other includes national shopping and consulting services. 1h NBF: not Bank Group financed Note: The figures in parentheses are amounts financed by the Bank Group. - 23 - 3.27 Civil Works ($24.0 million). All civil works would be procured and financed by the provincial governments using local competitive procedures which are acceptable to the Bank Group. All proposed works are extensions or complementary units of small size which are not anticipated to attract foreign bidders. A substantial part of these works have already reached the tendering stage. 3.28 Equipment, Materials and Books ($41.9 million). Procurement of equipment and materials with a contract value of $200,000 or above would be procured under ICB procedures. Contract packages valued at more than $50,000 and less than $200,000 equivalent up to an aggregate amount of $30.3 million would be procured under NCB procedures acceptable to the Bank Group. Individual contracts valued at less than $50,000 equivalent up to an aggregate amount of $1.98 million would be procured through national shopping based on at least three written quotations. The value of ICB packages for equipment is expected to be between $400,000 and $600,000 and would include equipment for training such as computers with peripherals, advanced electronics and telecommunications training equipment, and instruments for measurement and analysis. Under ICB, local manufacturers would be eligible for a margin of preference in bid evaluation of 15 percent of the CIF price or the prevailing rate of custom duty, which ever is lower. The value of NCB packages is expected to be between $100,000 to $200,000 and would include standard equipment for skills training such as machine tools, electrical tools and workshop instruments. Experience from the first vocational training project indicates that local suppliers of the above types of equipment are highly competitive and previous ICB for similar equipment has elicited little foreign supplier interests. Combined with the desirability of decentralizing procurement to the provinces, the type of equipment to be procured justifies a higher than normal proportion of NCB compared to ICB in the project. The use of standard bidding documents ensures that foreign bidders are not excluded from NCB. 3.29 Consultant Services and Training ($2.3 million). The selection and employment of consultants would be in accordance with the World Bank's "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency-August 1981." Consultants would be engaged using the Bank's Standard Forms of Contract for Consultants' Services-June 1995. It is anticipated that consultant services would total about 42-person-months, and all of the major part may be procured through sole source procurement under a twinning arrangement which would take into account both technical and language requirements (refer to para. 3.14). In that case, one or more contracts, including both international TA and training, valued at about $1.8 million could be approved. All other consultant services would be procured locally using local procedures acceptable to the Bank. Employment of consultants for the major part of technical assistance would be a condition for disbursement for procurement of equipment associated with that part of the technical assistance. 3.30 Review of Bid Documents and Contracts. Procurement of instructional equipment, computers and books with a contract value of $200,000 or above would be subject to prior review by the Bank Group. Prior review coverage would be of - 24 - approximately 26 percent of all contracts as a result of small contracts expected under NCB with 82 schools in five provinces having different equipment requirements. All contracts for consultant services, with a value of $50,000 or above for individuals and $100,000 or above for firms, would also be subject to prior review by the Bank Group. However, the exceptions to prior review do not apply to (a) the terms of reference for contracts, (b) single source selection of consulting firms, (c) assignments of critical nature, as reasonably determined by the Bank Group, (d) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above, or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. F. DISBURSEMENTS 3.31 The proposed credit of $20 million equivalent and loan of $10 million equivalent would be disbursed over a period of five years on the following basis: (a) equipment and materials: 100 percent of foreign expenditures; 100 percent of local expenditures (ex- factory); and 75 percent of expenditures for other items procured locally; and (b) consultant services and training: 100 percent of expenditures. 3.32 Disbursement would be made against statements of expenditure for expenditures of less than: $200,000 equivalent for equipment and materials; expenditures of less than $100,000 and $50,000 equivalent for consulting services for firms and individual consultants respectively. Supporting documents for statements of expenditure would be retained by the provincial/municipal project offices and the central SEdC project management office and would be made available for inspection during Bank Group supervision missions and by external auditors. All other disbursements would be made against fully documented expenditures. To expedite disbursement, a Special Account would be established and maintained in US dollars by the Ministry of Finance in a bank acceptable to the Bank Group. An authorized allocation in the amount of $3 million would be deposited into the special account, but the initial deposit would be limited to $2 million until the aggregate withdrawal shall be equal to or exceed the equivalent of $6 million. Replenishment of the Account would be made monthly or when the Account has reached 50 percent of the initial deposit. 3.33 The project is expected to be completed by June 30, 2002 and the closing date would be December 31, 2002. The estimated schedule of disbursements in Annex 8 is somewhat faster than the average disbursement profile for education projects in China due to the small size of the project and experience gained by SEdC in implementing the previous VTE project. G. ACCOUNTS AND AUDIT 3.34 Separate project accounts would be maintained by the project provinces/municipality and consolidated by FILO. The State Audit Administration (SAA) would have overall responsibility for auditing project accounts, and this arrangement is satisfactory. Assurances were obtained at negotiations that the Borrower -25 - would ensure that separate project accounts are maintained by the participating schools and provinces and that an annual audit report of project accounts, the Special Account and a separate opinion on Statements of Expenditure would be prepared by an independent auditor acceptable to the Bank Group and submitted to the Bank Group eight months after the close of the Borrower'sfiscal year. H. PROJECT MANAGEMENT AND IMPLEMENTATION Implementation Arrangements 3.35 Consistent with the bottom-up approach taken in preparing this project, its Project Implementation Plan (PIP) has been prepared based on the 82 detailed School Development Plans provided by the participating schools, where in turn were based on a series of workshops comprising trainers, school leaders, enterprise representatives and concerned government staff. The PIP is available in the Project File and is summarized below. An overall Project Implementation Schedule is summarized in Annex 3. A Project Implementation Agreement (PL4) detailing arrangements for project implementation would be entered into between the Borrower and each project province/municipality on terms and conditions satisfactory to the Bank Group. This would be a condition of Loan and Credit effectiveness. 3.36 Responsibility for implementation would be shared between the center, the provincial and local governments, and the schools themselves. The detailed allocation of implementation responsibilities is shown in Table 3.5. The implementation procedure adopted recognizes the special nature of this project, particularly: (a) the relatively small size of the loan and credit; and (b) the objective of supporting government reform and development, including management reform and decentralization, which require that project activities be integrated into the overall policy and management framework for vocational education. The teams established during project preparation, consisting of SEdC staff and consultants at the central level and Provincial Education Commission (PEdC) staff strengthened by consultants and industry representatives at the local level, would be maintained and provide support and advice during implementation. During negotiations, assurances were obtained that SEdC would cause the participating schools and provinces to prepare detailed annual plans for project implementation during the coming year, then consolidate the plans and submit the consolidated plan to the Bank Group for comment by October 15 of each year. Thereafter, the plans would be carried out, taking Bank comments into consideration. During negotiations, assurances were obtained that training and technical assistance would be carried out in accordance with plans satisfactory to the Bank Group with assistance from consultants. Organizational Structure for Implementation 3.37 The organizational structure for project implementation would have three levels: the Central Government level represented by SEdC; the provincial/municipal level represented by the Provincial/Municipal Education Commissions (PEdCs/MEdC); and the local level represented by the Education Offices of counties, cities, municipalities, -26- and Provincial Technical Bureaus and the participating schools themselves. A project implementation chart is presented in Annex 5. TABLE 3.5: ALLOCATION OF IMPLEMENTATION RESPONSIBILITIES Central/SEdC 1. Overall Coordination of Implementation, including: (a) establishment of systems, procedures, guidelines and regulations; and (b) coordination of annual plans for implementation 2. Direct implementation of procurement under ICB of selected equipment (subcontracted to the China National Technological Import Company CNTIC) 3. Overall coordination ofstafftraining (and related technical assistance programs), including organization of central expert advisory panels, and administration of international fellowships 4. Training of project management staff (including provincial staff) 5. Overall financial administration, including the Special Account and preparation of overall accounts of expenditure for the project. 6. Coordination of advisory functions, including specialist panels 7. Overall monitoring and evaluation 8. Reporting on the overall project Provincial/PEdC I. Coordination of implementation of the programs of project assisted development and reform of vocational education, including: * planning and implementation of physical development of the schools * planning and implementation of staff development programs * planning and implementation of course, training program and materials, revision, upgrading and development - * monitoring and evaluation of progress 2. Financial administration for all activities for which they are assigned implementation responsibility, drawing on loan/credit funds from the Special Account and on counterpart funds provided by participating local government authorities. 3. Procurement of equipment through NCB and National Shopping County/District/School 1. implementation of the programs of improving quality and efficiency of vocational education 2. Staff training and materials development 3. Procurement of equipment, books etc. through National Shopping within defined limits 3.38 Central Level. A National Project Steering Committee (NPSC), chaired by SEdC, and SEdC's Foreign Investment Loan Office (FILO) would have primary responsibility for implementation, to be carried out in consultation with other SEdC departments and offices, including Finance and Vocational Education Departments. FILO, would be responsible for coordinating and supporting project implementation, including regular reporting to the Bank and assisting Bank supervision missions at the center and in the provinces. It would also handle procurement under ICB and recruitment of international consultants. Overall guidance on project implementation would be provided by the National Project Steering Committee. In addition, a permanent Chinese Expert Panel (CEP) would be established to advise SEdC and PEdCs on substantive aspects of vocational education reform as well as on project implementation and coordination Assurances were obtained at negotiations that SEdC would maintain FILO as the overall responsible body for project implementation. - 27 - 3.39 Provincial Level. At this level, Provincial Project Advisory Committees (PPACs) would be established to provide overall guidance of provincial-level project activities, which would be managed on a day-to-day basis by Provincial Project Implementation Offices (PPIOs). The PPACs would meet at least every three months to discharge their duties. The participating Provinces' authorities, coordinated by the PEdCs, in collaboration with city and municipal authorities, would be responsible for implementation of the project programs in the project schools under their control, and for ensuring that the reform and improvements achieved by these schools are monitored, evaluated, disseminated, and extended to other schools in each participating Province's vocational education system. The Provincial authorities would also provide financial management for all activities under their responsibility, and manage non-ICB procurement. During negotiations, assurances were obtained that the Borrower would cause the PPIOs to be established and maintained for the duration of the project, with functions and responsibilities satisfactory to the Bank Group, and with competent staff in adequate numbers. 3.40 Local Level. To enable local (subprovincial) authorities to coordinate project activities and disseminate project findings to nonproject schools, Local Government-level Coordinating Committees (LGCCs) would be set up covering the administrations of all project schools. At each participating school, a School Project Planning Implementation Offices (SPPIO) would be established to coordinate project-related activities. Assurances were obtained at negotiations that the Borrower would cause the SPPIOs to be established and maintained for the duration of the project, with functions and responsibilities satisfactory to the Bank Group, and with competent staff in adequate numbers. 3.41 In addition, permanent School Governing Boards (SGBs) and School Industrial Advisory Committees (SIACs) would be established at each project school to participate in project implementation in their respective areas of competence. Assurances were obtained at negotiations that the Borrower would cause the SGBs and SIACs to be established and maintained for the duration of the project, with functions and responsibilities satisfactory to the Bank Group. 3.42 The participating schools would be responsible, in close collaboration with provincial and national authorities, for the detailed implementation of the reform effort, including an active participation in curriculum and training materials development, teacher and administrator training, and equipment selection, specification, and evaluation, as well as in the monitoring and evaluation of school and graduate performance at school and in the labor market. The head of each SPPIO would report directly to the school principal and through him/her, to the relevant PPIO. The SGBs would assist the management of each school on matters of finance and administration. The SIACs would provide a mechanism to ensure full participation of employers in the planning, delivery and evaluation of training. -28- I. SUPERVISION 3.43 Bank Group supervision of the project would focus on the monitoring indicators shown in Annex 1, and the review and evaluation of progress in implementing the annual work programs to be prepared by the participating provinces/municipality and schools. The results of monitoring and evaluation carried out by the implementing agencies, using the improved systems to be introduced under the project, would also be considered. An indicative supervision plan is shown in Annex 7. Assurances were obtained at negotiations that the SEdC would carry out a mid-term review ofproject progress before December 31, 1998. If warranted by the results of the review, changes would be made to the project's scope, implementation arrangements, etc. J. ENVIRONMENTAL IMPACT 3.44 The proposed project would have no environmental impact and has a "C" classification. Facilities to be constructed or enlarged for the project schools would entail no land acquisition. - 29 - 4. BENEFITS AND RISKS A. BENEFITS 4.1 The project would spur further reform of the VTE system, particularly by making the system more demand driven, and increasing the amount of funding obtained from nongovernment sources. The project is designed to make the schools more responsive to market demand by enterprises and employers participation in SIACs and SGBs at each school. In addition, the new equipment to be provided by the project is seen as a catalyst enabling new courses to be started and staff to be upgraded which would enable project schools to respond more efficiently to market demands. This improved response is expected-to attract more funds from enterprises (and more fees from students), thus enabling equipment to be replaced continuously as it becomes obsolete, and courses to be reconfigured and revised as market demand for skills changes. In the 82 project assisted schools, enrollment would increase from 42,000 to 60,000, 60 instructors would be trained overseas and in country and about 80 principals and provincial managers would benefit from study visits and domestic training. 4.2 The project would also benefit graduates of the participating schools who, by receiving better quality and more relevant vocational education, should be able to find suitable initial employment and, more important, to secure continued career development. Inservice training to be provided by the project schools would also benefit SOE staff who need to improve their skills in keeping with the needs of their restructured enterprises. Enterprises and other employers in the project areas would benefit from the availability of a better trained pool of skilled workers, facilitating improved production quality, increased productivity, and more efficient management. And, if the curriculum and management reforms to be tested under the project are judged effective, project initiatives would be replicated in other schools in the provinces, and would expand the range of benefits realized. Economic Justification 4.3 The project represents the least-cost solution to furthering VTE reform and enhanced training quality in economically important specializations. In the absence of a significant private sector VTE system, the SEdC-run secondary schools are currently the most appropriate institutions to address China's preservice technical training needs. These schools are well established, are basically sound and, in the case of the schools selected for participation in the project, are committed to the reforms to be fostered under the project. Project inputs have been carefully targeted to areas already possessing a strong market orientation, at schools that have already achieved a reasonable standard, and at technical specializations in great demand by both trainees and enterprises. Project -30- inputs maximize the impact of the relatively modest level of support being provided. Physical investments have been screened to ensure their cost-effectiveness and sustainability, while considerable effort was made to ensure stakeholder acceptance of project technical assistance as well as its suitability and strong potential for success. 4.4 It would be desirable to calculate an internal rate of return on the proposed investments; however, the necessary data are not complete. While a tracer study carried out in January 1994, as part of project preparation, collected data on average current monthly earnings of secondary vocational school (SVS) and secondary technical school (STS) graduates, no data are available on earnings of comparison groups. Neither the State Statistical Bureau's national household survey nor the Ministry of Labor's establishment survey collect the individual records, including earnings, that are needed for this purpose. However, school-level data were collected during project preparation, from which inferences may be made about the impact of VTE on productivity and about private rates of return. The fact that SVSs obtain 32 percent and STSs 20 percent of their current funding (excluding production income and expenditure) from tuition fees suggests that many of the courses mounted by both types of school offer a high private rate of return to individuals. 4.5 Further, the relatively high proportion of current funding obtained from enterprises (14 percent for SVSs and 18 percent for STSs) suggests that employers also enjoy a private rate of return on some of the courses offered. Data from Jiangsu Province on source of sponsorship of first-year students give a preliminary indication as to which courses are attractive and to whom. Those with a presumably high private rate of return as perceived by students include, in SVSs, computer and business studies, automobile driving and repair, and chemical, electronic, and machinery assembly trades; and in STSs, computer studies, foreign trade, and electronic machinery. Those with a presumably high private rate of return to employers include, in SVSs, automobile trades, tourism and machinery trades; and in STSs, chemical, electrical, electronic, machinery and textile trades. Investments to improve the quality and management of training as well as monitoring of external efficiency, as planned under the project, will help to increase social rates of return by further improving the productivity impact of VTE. They will also attract more funds from enterprises and more fees from students, thus further increasing the proportion of income obtained by the schools from nongovernment sources. Sustainability 4.6 The proposed project investments are considered sustainable. Fees from students and increased financial support from enterprises are generally expected to cover most of the incremental costs of the specialized courses supported under the project. The project's institutional sustainability would benefit from project-supported technical assistance and training provided by successful VTE institutions in Singapore. Financial sustainability would benefit from significant stakeholder participation in the project design process. Project design was developed from a series of workshops comprising -31 - enterprise representatives, employers, school principals and concerned government agencies. Based on this, project inputs and activities for the schools were identified by the schools themselves and incorporated into overall school development plans. These plans were then reviewed by a panel of local experts and the Bank Group, and the schools, in consultation with the review panel, adjusted their proposals with a view to ensuring adequate future operations of the envisioned investments and activities. The incremental recurrent funding requirements as a result of the project are therefore modest and considered manageable. Project schools would also be encouraged under the project to increase their cooperation with local enterprises in terms of school management, selection of training programs and increased financial contribution. Their self-financing capacity is therefore expected to increase, reinforcing the likelihood that investments would be maintained and equipment updated as needed. Overall sustainability of the VTE system will depend on the schools' success in forging strong relationships with local industries and enterprises. It is the aim of the project to strengthen these linkages, which already exist for many schools, and to reorient the schools to serving China's growing number of joint ventures and commercialized enterprises. Mechanisms directed at the latter goal include panels of school advisers from a range of major local industries and an enhanced labor market information system allowing schools to identify market demands. Incremental Costs 4.7 The project's implications for the government budget are approximately neutral. According to 1993/94 figures provided by provincial education bureaus, salaries represent about 46 percent of total current expenditure of the secondary vocational and technical schools in the project provinces, compared with 7 percent on student stipends, 5 percent on pensions, 15 percent on office expenses, 15 percent on maintenance and 12 percent on materials (for production as well as training purposes). The project's main impact on the structure of expenditure will be on salaries, office expenses, maintenance and materials/ depreciation. Plausible assumptions may be of a 10 percent rise in the salaries costs (due to salary increases for upgraded staff rather than an increase in staff numbers, thanks to improvements in efficiency and staff/student ratios); a 10 percent increase in office expenses (reflecting the extra costs associated with monitoring, evaluation and labor market information); a 10 percent rise in maintenance costs; and an increase in spending on materials and depreciation of as much-as 50 percent (reflecting the depreciation cost of the new equipment, in particular). A package of this kind would place no extra burden on the government budget, as long as the proportion of the schools' expenditure financed from nongovernment sources rose from 47 percent to 53 percent. This is a modest target for such a reform project and based on available data on demand from enterprises, should be achievable. Replicability 4.8 Although the project would directly benefit only a relatively small number of schools, the upgraded systems and programs would provide models for dissemination throughout the project provinces, and nationally. Project elements most suitable for - 32 - replication include: (a) upgraded modular courses and training materials; (b) training of technical teachers, including improved domestic inservice training programs, and teacher training provided by the project key schools for staff of other schools in the province; and (c) experience from management reforms. The benefits of enhanced, more relevant training would be evaluated and the results disseminated to encourage an increasing number of enterprises to extend and upgrade their participation in such training, including assumption of an increasing share of the cost. B. RisKs 4.9 The main project risks are institutional and financial. A risk exists that the participating schools would not be able to carry out the project as envisioned. Mitigating this possibility are: the bottom-up approach taken to project design, allowing the schools to understand fully and be involved in the dimensions and requirements of the plans; the experience of the project provinces and SEdC with other Bank Group projects, experience that can be shared with the project schools; and the technical assistance and training included in the project specifically to buttress implementation capacity. 4.10 There is also a risk of delay in bringing about change and improved training due to delays in foreign experts' participation in the project and in training programs. Care has therefore been taken during project preparation to minimize this risk by maintaining a continued, detailed dialogue on training programs with the participating schools, by closely integrating consultant support with those programs, and by developing an innovative twinning arrangement for delivery of foreign technical expertise in a mode suited to the Chinese context. Client ownership of project technical assistance and training has been regarded as essential to success. Project conditionality would require recruitment of key technical assistance as a condition of loan/credit effectiveness and project training programs according to an agreed timetable. 4.11 On the financial side, there is a risk of underfunding the recurrent costs of upgraded VTE programs and spreading available resources too thinly. This risk has been dealt with by involving participants closely in the project design process to ensure a realistic project scope tailored to available resources, and by limiting improvements and their costs in each school to only one or two priority specializations for which demand is high and mostly assured. Incremental recurrent costs caused by the project investment are estimated to be modest and are expected to be covered by nongovernment financing (para. 4.7). -33- 5. AGREEMENTS REACHED AND RECOMMENDATION 5.1 During negotiations, assurances were obtained from the Borrower that: (a) A Project Implementation Agreement detailing implementation arrangements would be entered into by the Borrower and each project province/municipality on terms and conditions satisfactory to the Bank Group as a condition for loan/credit effectiveness (para. 3.35); (b) Employment of consultants for the major part of technical assistance would be a condition for disbursement for procurement of equipment - associated with that part of the technical assistance (para. 3.29); (c) SEdC would prepare and submit to the Bank Group by April 1 of each year a consolidated report of the status of project implementation including an account of monitoring indicators (para. 3.3); (d) The proceeds of the Loan and Credit would be made available to the Provinces, the Municipality of Tianjin and to the project schools on terms and conditions acceptable to the Bank Group (para. 3.25); (e) The Borrower would maintain separate project accounts and submit to the Bank Group annual audit reports of project accounts, the Special Account and a separate opinion on the Statement of Expenditures prepared by an independent auditor acceptable to the Bank eight months after the close of the Borrower's fiscal year (para. 3.34); (f) SEdC would cause the participating schools and the provinces to prepare annual plans for the detailed implementation of project activities, which would be consolidated by SEdC, submitted to the Bank Group for review by October 15 of each year, and implemented, taking the Bank's comments into consideration (para. 3.36); (g) SEdC would employ consultants for technical assistance and staff development in accordance with an agreed plan (para 3.36); (h) SEdC would maintain FILO as the overall responsible body for project implementation (para. 3.38); (i) The Borrower would cause the Provincial Project Implementation Offices (PPIO) at the province level and the School Project Planning and Implementation Offices (SPPIO), the School Governing Boards (SGBs) - 34 - and the Industrial Advisory Committees (IACs) at the school level to be established and maintained, with functions and responsibilities satisfactory to the Bank Group, and with competent staff in adequate numbers (paras. 3.39-3.41); and (j) SEdC would carry out a mid-term review before December 31, 1998 (para. 3.43). 5.2 Subject to the above agreements, the proposed project would constitute a suitable basis for an IDA credit of SDR 13.8 million ($20 equivalent) and an IBRD loan of $10 million equivalent to the People's Republic of China. The credit would be on standard IDA terms, with a 35-year maturity, and the loan would be at the Bank's standard variable interest rate for currency pool loans, for a term of 20 years, including 5 years of grace. KEY PERFORMANCE INDICATORS Baseline Mid-term Full Impact Project Objectives Key Performance Indicators 1996 1997 1998 1999 2000 2001 2002 A. Improved and Increased a. Percent of graduates from Project Supply of Skilled Labor to Schools employed 6 months after Market Demands graduation; b. Starting salary of graduates com- pared to workers of same age without preservice training B. Improved VTE Efficiency a. Percentage of project school attain and Quality National Key School Status C. Enhanced a. Number of provinces preparing Monitoring/Evaluation and annual plans based on cost/out- Dissemination come anplysis; b. Percent bf schools with fully operational tracer studies/feed- back system D. Improved School a. Average unit cost per trainee year Management and Efficiency compared to nonproject schools; b. Percent of utilization of labs/ workshops compared to non- project schools; c. Percent of financing from non- government sources, e.g. industry and tuition fees; d. Ratio of technical teachers compared to administrative staff E. Improved Market-based a. Percent of graduates employed in Planning/ Links with Industry non-state sector, e.g. JV, private/TVE b. Starting salary of project school graduates compared to others z -36- ANNEX2 ANNEX 2: SOME ECONOMIC ASPECTS OF VOCATIONAL EDUCATION AND TRAINING IN PROJECT PROVINCES Introduction 1. In analyzing the economics of vocational education and training (VET) in China, several special conditions have to be borne in mind. The first is the phenomenal rate of economic growth. Over the 1987-1993 period real Gross Domestic Product (GDP) increased at an annual average rate of 9 percent. Currently, with real GDP increasing by 12 percent in 1994 (and with double-digit growth again expected in 1995), China is the fastest growing economy in Asia, the world's fastest growing region. 2. Secondly, the government is following an incrementalist approach to the transition from central planning to markets. Reform of institutions, including enterprises and the labor market, is gradual, with the emphasis on building on what there is, rather than smashing and replacing. Growth plus gradualism have meant that the welfare costs of transition have been lower in China than in Europe and the incidence of poverty has fallen. 3. A third point concerns the relative size and strength of the public and private VET systems. The public VET system is large, experienced and linked to enterprises. Private training institutions are beginning to emerge in the larger cities. In Qingdao (Shandong province), for instanc;, there are around 400, offering short courses in computer applications, foreign trade, business, music, garment making and designing, etc. In Dalian (Liaoning) they concentrate on secretarial, accounting and computer keyboard skills. In the smaller cities, such as Anshan (Liaoning), their quality and quantity is described as low, and they offer short courses in elementary word-processing. In general, they are few and weak, and mainly confined to quick-profit, short-course specializations. 4. Each of these special conditions has implications for VET. Fast growth, together with structural change and upgrading of technology and product quality, means that vast numbers of new skilled workers are needed each year. In 1993 one in 15 industrial workers had probably been recruited during the past year; in the services sector the ratio was even higher, maybe one in ten. Inplant training alone is unable to cope with imparting skills to new recruits on this scale: it needs to be supplemented by offplant, precareer training. 5. Secondly, the gradual pace of reform means that there is still a long way to go, particularly in restructuring of SOEs. This presents dangers as well as opportunities for the public VET system. Insofar as its close relations with employers are based on the old system, they may become more rather than less difficult to maintain and enlarge, as -37- ANNEX2 enterprise reform accelerates and the number of nonstate enterprises increases. Increasingly profit-conscious enterprises will need to be convinced that investment in offplant training pays off: new relationships, new skills, and new courses will be needed for this purpose. 6. Thirdly, the need for the public VET system to become self-supporting and responsive to industry's needs, while not crowding out private training institutions (the so-called level playing field), is generally agreed. This does not necessarily imply a complete absence of subsidy for secondary vocational and technical schools: the general- education part of the curriculum is still a proper state function. The aim of every school should be to raise income to cover the costs of the rest of the curriculum: this will vary between schools and specialization but is unlikely to exceed 60 percent of current costs. The Provinces and Their Schools 7. The project will be implemented in four provinces, Guangdong, Jiangsu, Liaoning and Shandong, and one municipality, Tianjin, all located on the coast. Table 1 summarizes some recent economic indicators. Table 1: ECONoMIC INDICATORS FOR PROJECT PROVINCES, 1994 Guangdong Jiangsu Liaoning Shandong Tianjin Population (million) 67 70 41 87 9 GDP per head (Y) 6,340 5,779 6,354 4,466 7,755 Real growth rate 19% 17 11% 16% 14 Exports per head ($) 751 95 149 68 288 Foreign direct investment per head 141 54 35 29 109 % employed in second sector 28% 33 39% 24% 49 % employed in third.sector 31% 24 30% 20% 34 SOE employment as % of non- 27% 27 49% 32% 42 agricultural employment Source: China Statistical Yearbook; 1995. 8. These are prosperous provinces by Chinese standards. GDP per head in the lowest case, Shandong, is 19 percent above the national average. They are also among the most dynamic areas of the country, with all except Liaoning exceeding the national average growth rate for the year of 12 percent. Tianjin is a special case. The fact that it is an urban area accounts for its high figures for GDP, exports and foreign investment per head, and for its large proportion of employment in the second sector: however, it is lagging in the process of reform, with a relatively underdeveloped tertiary sector and with nonagricultural employment still dominated by SOEs. Of the provinces, Guangdong's is clearly the most reformed economy, with a relatively small proportion of nonagricultural workers in state enterprises, the highest ratio of employment in the tertiary sector to that -38- ANNEX2 in the secondary sector, the highest figures for exports and foreign investment per head, and an amazing 19 percent growth rate. Shandong is less industrialized and with lower income, exports and foreign investment per head, but scores well on such indicators of reform as relative size of tertiary sector, and non-SOE as a percentage of nonagricultural employment. Jiangsu is in an intermediate position as far as exports and foreign investment per head are concerned, and has a relatively small tertiary sector, but rivals Guangdong in the development of non-SOE employment. Liaoning has the highest GDP per head of the four provinces, but in many ways has the greatest transitional problems. Its economy is still dominated by heavy industry and by SOEs, its services sector is relatively small, and it is attracting relatively little foreign investment. 9. The provinces differ also in the management and orientation of their secondary and vocational technical schools, to judge from an analysis of responses to questionnaires returned by 78 project schools, distributed as shown in Table 2. Table 2: DIFFERENCES BETWEEN PROJECT SCHOOLS BY PROVINCE, 1995 Jiangsu Guangdong Liaoning Shandong Tianjin Total Number in sample: SVS 13 6 11 13 9 52 STS 10 5 3 4 4 26 Total 23 11 14 17 13 78 Regular links with Industry Yes 22% 36% 71% 100% 100% 63% No 78% 64% 29% 0% 0% 37% 100% 100% 100% 100% 100% 100% Main sector of employment: Agriculture/Manufactory 67% 86% 21% 67% 77% 61% Services 33% 14% 79% 33% 23% 39% 100% 100% 100% 100% 100% 100% Teachers salaries as a % of private-sector salaries for comparably qualified persons 75% or less 39% 50% 62% 53% 50% 50% >75% 61% 50% 38% 47% 50% 50% 100% 100% 100% 100% 100% 100% % of graduates going to non- SOEs: <30% 30% 50% 29% 31% 38% 33% 30%+ 70% 50% 71% 69% 62% 67% 100% 100% 100% 100% 100% 100% Source: Questionnaires returned by project schools. -39- ANNEX2 10. Provinces appear to differ in their approach to cooperation with enterprises. In two cases, Shandong and Tianjin, all the project schools obtain regular advice from employers, usually through their membership of management or advisory committees. In Jiangsu and Guangdong, on the other hand, only a minority of schools make such arrangements. Most provinces have selected schools oriented towards industry: Liaoning is the exception, obviously intending to use the project to boost its underdeveloped services sector. All provinces have difficulty in keeping salaries for their teaching staff up to levels prevailing in the private sector: not surprisingly, this is particularly the case in Guangdong, where the private sector is most dynamic. In Guangdong, also, the schools seem to be the most SOE-oriented: only 50 percent of project schools send 30 percent or more of their graduates to the private sector, compared with more than 70 percent of schools in Jiangsu and Liaoning. Demand, Outcomes and Impact 11. Unemployment is not a useful indicator of the labor market situation in China. In all five provinces the official unemployment rate is probably near the national average of 2.6 percent. However, this figure refers to urban areas only, excluding job-seekers from rural areas who are not officially urban residents. In addition, there are large numbers of surplus workers in SOEs. As far as secondary school leavers are concerned, as might be expected from Table 1, the labor market in these provinces is booming. The 1993 tracer study of SVS and STS leavers found no unemployed, and none were reported by any of the project schools. There seems to be no difference between vocational/ technical and academic school leavers in this respect. 12. Information about what happens to school leavers is widely available. For instance, the 1993 tracer study found that 89 percent of 1992 graduates from STSs and 50 percent of those from SVSs were first employed in SOEs. The data collected from the project schools is consistent with this: the median was 82 percent of 1994 graduates of STSs to SOEs, 54 percent in the case of SVSs. The tracer study also found average current monthly earnings of secondary vocational school (SVS) and secondary technical school (STS) graduates employed in organizations other than the government administration and SOEs to range (depeDding on the type of organization) from Y 117 to Y 650 for the 1988 cohort, from Y 115 to Y 300 for the 1990 cohort, and from Y 112 to Y 301 for the 1992 cohort. Schools regularly collect other data on outcomes. What is lacking is information about the impact of vocational/technical education. That is, what difference does it make to the labor market experience of its graduates? 13. Impact is difficult to estimate for various reasons. There is the usual difficulty of selecting a comparison group. In China, as in many other countries, the cream of lower secondary school leavers goes to upper secondary academic (or general) schools; the vocational/technical schools get the rest. Therefore, a comparison between vocational/ technical and upper secondary general graduates is not valid. A fairer comparison would be between two groups of lower secondary school leavers of five or six years earlier, all with comparable marks in school-leaving examinations. One group would consist of -40- ANNEX2 those who went through vocational/technical education, the other of those who found other routes (probably including a short training course). The difference between the subsequent labor market experience of the two groups would measure the impact of vocational/technical education. No such comparison-group data are available. 14. Indeed, no individual-record data of the kind that could be used in estimations of' impact (and of rates of return) on VTE are currently available. The National Household Survey collects data on the age, sex, education, occupation and employment of individual household members, but not of their earnings. The Ministry of Labor in its Establishment Survey, aggregated data on average wages and average years of schooling of different categories of workers, but not in the individual-record form needed for impact estimation. It also conducts an occasional household survey, which does include individual records but not in a form that is usable for this purpose. The most recent published data from this survey are for 1992. 15. Another reason for the difficulty of impact estimation is the still underdeveloped state of the labor market. Unemployment among such graduates is negligible, and a large proportion still works for state enterprises, where wages are still largely determined by administrative rules. 16. In these circumstances a useful indicator of the relative marketability of different types of graduates (and, by inference, the private rate of return on their training) is provided by the proportion of students in each specialization who are either sponsored/ contracted by enterprises or paying for themselves. Table 3 shows the situation in the case of Jiangsu province. 17. This table suggests that there are significant differences in private rates of return between specialization. Any specialization with a significant proportion of private fee- paying students must be offering a high expected private rate of return to individuals. Any specialization with a high proportion of enterprise-sponsored students must be offering a high private rate of return to the employers involved. In both cases a positive impact on productivity can be inferred. Conversely, questions must be asked about the specialization in which a high propotion of students are government-assigned. A difference in orientation between SVS and STS is apparent in these respects. At SVS level, there seems to be relatively little interest among industrial enterprises in sponsoring trainees, except in machinery trades; employers in the services sector are more interested, particularly in automobile trades (repair and driving), tourism and computer studies. Computer and business studies and automobile driving and repair are also relatively popular among private students, in addition to chemical and electronic machinery trades: these are also the specialization that private training institutions are likely to become interested in. At STS level, industrial enterprises sponsor relatively more students, particularly in chemical, electrical/electronic, machinery and textile trades: some of these also attract private students, as do computer studies and foreign trade. -41- ANNEX2 Table 3: FIRsT YEAR STUDENTS IN PROJECT SCHOOLS, BY SPECIALIZATION AND SPONSORSHIP, JIANGSU PROVINCE, 1993/94 Number of Government Enterprise Private Total students assigned sponsored fee-paying A. SVS Business 1,024 58% 10% 32% 100% Computer 151 5% 21% 74% 100% Secretarial 66 89% 2% 9% 100% Foreign trade 42 62% 12% 26% 100% Tourism 536 47% 35% 18% 100% Education 199 100% 0% 0% 100% Automobile 177 0% 49% 51% 100% Chemical 54 61% 0% 39% 100% Construction 258 82% 0% 18% 100% Electrical 100 64% 8% 28% 100% Electronic 657 45% 6% 49% 100% Machinery 501 53% 35% 12% 100% Textiles 66 59% 15% 26% 100% Other 129 22% 0% 78% 100% Total 3,960 52% 16% 31% 100% B. STS Business 1,050 66% 16% 17% 100% Computer 330 14% 22% 64% 100% Secretarial 108 63% 31% 6% 100% Foreign trade 219 38% 31% 31% 100% Shipping 194 51% 29% 20% 100% Science 46 67% 20% 13% 100% Chemical 163 36% 42% 22% 100% Electrical 410 17% 57% 26% 100% Electronic 734 20% 38% 43% 100% Machinery 477 27% 46% 27% 100% Textiles 685 27% 68% 5% 100% Animal husbandry 337 100% 0% 0% 100% Total 4,753 41% 35% 24% 100% Source: Questionnaires returned by project schools. Costs 18. A careful comparison of the relative costs of general and vocational/technical education has not yet been undertaken in China, but two provinces have provided the figures on current expenditure per student in different types of secondary education, shown in Table 4. -42- ANNEX2 Table 4: CURRENT EXPENDITURE PER FULL-TIME STUDENT, SECONDARY EDUCATION, BY TYPE, GUANGDONG AND SHANDONG PROVINCES, 1993/94 Lower secondary Upper secondary (general) SVS STS Guangdong 569 1,641 1,350 3,836 Shandong 343 810 1,388 1,775 Source: Provincial Education Bureaus. 19. The pattern is largely as expected, with higher levels more costly than lower levels, and vocational/technical more costly than general (with the exception of SVS in Guangdong). However, the comparability of the figures is in doubt. Short-term students in vocational/technical schools are excluded from the denominator: in 1993/94, Guangdofg SVS and STS had 205,000 and 69,000 such students respectively, while in Shandong the comparable figures were 190,000 and 1.7 million. Also, expenditure figures include pension payments to retired teachers to a varying extent. Further investigation is needed. 20. Vocational/technical schools differ from general schools in the amount of funding that they obtain from nongovernment sources. As Table 5 shows, this amounted to 47 percent of current revenue in 1993/94. Table 5: SOURCES OF CURRENT FUNDING, VOCATIONAL AND TECHNICAL SCHOOLS, BY TYPE OF SCHOOL AND PROVINCE 1993/94 Province Type Government Enterprises Tuition fees Production Total Guangdong SVS 64% 4% 17% 7% 100% STS 58% 15% 24% 4% 100% All 61% 9% 20% 6% 100% Jiangsu SVS 37% 14% 35% 9% 100% STS 64% 10% 20% 4% 100% All 52% 12% 27% 6% 100% Liaoning SVS 56% 2% 32% 7% 100% STS 48% 11% 38% 3% 100% All 53% 5% 34% 5% 100% Shandong SVS 46% 20% 19% 10% 100% STS 54% 41% 2% 1% 100% All 48% 27% 14% 7% 100% Tianjin SVS 44% 15% 35% 7% 100% STS 61% 22% 12% 3% 100% All 52% 18% 25% 5% 100% Total SVS 48% 12% 28% 8% 100% STS 59% 17% 19% 4% 100% All - 53% 14% 24% 6% 100% Source: Questionnaires returned by project schools (School Development Plans). -43- ANNEX2 21. As can be seen, SVSs are more successful than STSs in obtaining nongovernment funds. Provinces also vary: Shandong is the least, Guangdong the most reliant on government funding. Shandong is particularly successful in attracting finance from enterprises. Liaoning has the highest proportion of funding from tuition fees. Some of the reasons for these differences are explored in Table 6. Table 6: SOURCES OF FUNDING FOR CURRENT EXPENDITURE BY ENTERPRISE INVOLVEMENT IN MANAGEMENT (Main Sectors in Sector of Employment of Graduates, Salaries Compared with Private Sector, and Percentage of Graduates Going to Non-SOEs) Government Enterprises Tuition Fees Production Total Regular links with Industry YQs 52% 17% 24% 6% 100% No 59% 10% 24% 7% 100% Main sector of employment: Agriculture/manufacturing 54% 16% 22% 6% 100% Services 50% 13% 27% 5% 100% Teachers salaries as a % of private- sector salaries for comparably qualified persons >75% 53% 12% 27% 6% 100% 75% or less 54% 18% 19% 6% 100% % of graduates going to non-SOEs: <30% 59% 17% 18% 3% 100% 30%+ 49% 13% 29% 7% 100% Source: Questionnaires returned by project schools. 22. Schools that involve enterprise representatives in their management seem, as might be expected, to be significantly more successful in raising money from enterprises. This may be one of the reasons for the relative lack of such success by Guangdong and Jiangsu (see Table 2 above). Schools oriented toward the secondary sector are slightly more successful in attracting funding from enterprises, while those oriented towards the tertiary sector are able to attract a significantly higher proportion of fees: this may account partly for the pattern of Liaoning's funding shown in Table 2. Interestingly, the payment of competitive salaries to teachers seems to be less important in attracting enterprise sponsors than it is as an attraction to individual fee-payers! Rather ominously, schools still relying on state enterprises to employ their graduates attract a higher proportion of finance from enterprises than those more geared to nonstate enterprises (which are, however, able to attract a higher proportion of tuition fees). Summary of Findings 23. An important purpose of the project is reform of the VET system, particularly in the sense of increasing the amount of funding obtained from nongovernment sources. -44- ANNEX2 New equipment is mainly seen as a catalyst for reform, enabling new courses to be started and staff to be upgraded, with multiplier effects across the VET system. This will attract more funds from enterprises (and more fees from students) and thus enable equipment to be continuously replaced as it becomes obsolete. 24. Targets for nongovernment funding need to be set by each school, sufficient to cover the cost of the technical/vocational part of the curriculum (including its proportion of overheads). On average, schools are already remarkably successful in raising such finance, equivalent to 47 percent of current funding, 52 percent for SVSs alone. Several schools are probably already on target, but there are also many (particularly among STSs) which are not. The easier way of raising such funds may be to lay on courses which attract tuition fees, but many of these (low-level business and computer studies, automobile repair and driving, secretarial courses, etc.) can more efficiently be left to private training institutions as they gradually develop: it may be that the comparative advantageof the public system is in courses which attract funds from enterprises. 25. To this end, those schools that do not already involve enterprise members in school management (particularly in Jiangsu and Guangdong provinces) need to make such arrangements as soon as possible. Several schools could be used as models in designing such systems. Relations with enterprises need to be widened to include more nonstate enterprises. Contacts with township/village enterprises seem to be particularly weak, with a few exceptions. 26. Schools that do not have contracts for training with enterprises need to learn from those that do. Even more important, schools that are not receiving an adequate fee from enterprises for contract training, need to learn from schools which are successful in negotiating adequate training fees. And schools that bear the full cost of inplant training practice need to learn from schools which persuade enterprises to pay for it. 27. The school office responsible for relations with enterprises should also be responsible for finding out what has happened to graduates. As the labor market develops, the focus of such tracer studies will need to change, from a survey of opinions of employers to a set of questions directed towards graduates, covering: whether they are working or not working; if working, in what occupation; their earnings; relevance of training to their job; and, if not working, whether unemployed or outside the labor force. This information will need to be compared with similar information on appropriate comparison groups, in order to measure the impact of different types of training. They can be supplemented by indicators of the relative marketability of different types of graduates, of the kind shown in Table 3. The same office should also analyze the cost of each course run by the school, so that cost per graduate of each course can be calculated, for comparison with impact. The effective use of cost-per-unit-of-impact estimates in the redesign of curricula will also need to be ensured. 28. Production income (6% of total revenue) raises some special issues. In most cases, school accounts seem to show gross income from production, which will be offset -45- ANNEX 2 by connected expenditure on materials, power, supervisors' time, etc. There are three categories of production unit in schools: (a) those using only student labor, with the primary purpose of training. Customers should always be expected to pay for the products of these units, but they should not become profit-driven. (b) those using nonstudent labor, with the primary purpose of making a profit, but the secondary purpose of providing students with training practice. (c) those using only nonstudent labor, with the sole purpose of making a profit, and no training function. The mission saw examples of all three categories in visits to schools. Categories (b) and (c) are not-problematic, but (a) can become so. Periods spent in production units should never be longer than necessary for training purposes. If it is not possible to reproduce industrial conditions, inplant training practice is preferable. ANNEX 3: PROJECT IMPLEMENTATION SåHEDULE Calendar Year 1997 1998 1999 2000 2001 Quarter Q Q Q2 Q3 Q4 QI Q2 Q3 Q4 QI Q2 Q3 Q4 QQ Q2 Q3 Q4 A. Developmåent of Key Schools i. Civil Works ii. Provision of Equipment iii. Curriculum Development a. Technical Assistance b. Staff Training v. Local Training B. ManagenentPlanning i. Technical Assistance ii. Management Training iii. Local Training C. Projeet Management i. Technical Assistance ii. Staffitraining by FiLO iii. Seminars iv. Study Tour v. Expert Panel . ____ _ I..L1L ANNEX 3A: PROCUREMENT SCHEDULE Calendar Year 1997 1998 i 1999 2000 Quarter 1Q2 Q3 JQ4 Q1 Q2 Q3 Q4 QI Q2 Q3 Q4 Ql Q2 Q3 Q4 Appointment of Procurement Agent ICB Preparation of Specifications /tender documents Advertisement Bid-opening/Evaluation Delivery NCB First Tender I Preparation of Specifications /tender documents Advertisement Bid-opening/Evaluation Delivery Second Tender Preparation of Specifications /tender documents Advertisement Bid-opening/Evaluation Delivery China Vocational Education Reform Project Table 14. SEdC Detailed Costs Expenditures by Financiers (US$ Million) Totals Including Contingencies IDAJIBRD 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total 1. Investment Costs A. Local Consultants Local Training 0.00 0.00 0.00 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.01 Foreign Consultant 0.01 0.01 0.01 0.00 0.00 0.03 0.01 0.01 0.01 0.00 0.00 0.03 Local Consultants 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Advisory Panel 0.01 0.02 0.01 0.01 0.00 0.05 0.01 0.02 0.01 0.01 0.00 0.05 Study Tours 0.01 0.01 0.01 0.00 0.00 0.04 0.01 0.01 0.01 0.00 0.00 0.04 Total 0.03 0.05 0.03 0.01 0.01 0.13 0.03 0.05 0.03 0.01 0.01 0.13 China Vocational Education Reform Project Table 9. Shandong Detailed Costs Expenditures by Financiers (US$ Million) Province IDA/IBRD 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. Investment Costs A. Books 0.10 0.16 0.17 0.09 0.03 0.55 - - - - - - B. Civil Works 2.31 1.54 - - - 3.85 - - - - - - C. Equipment /a 0.42 0.63 0.48 0.20 0.11 1.84 1.53 2.29 1.74 0.73 0.39 6.68 D. Technical Assistance Foreign Consultants (Corn. 1) - - - - - - 0.02 0.03 0.03 0.01 0.01 0.09 Foreign Consultants (Com. 2) - - - - - - 0.01 0.02 0.02 0.01 0.00 0.06 Foreign Consultants (Com. 3) - - - - - - 0.00 0.00 0.00 0.00 0.00 0.01 Overseas Training (Instructors) - - - - - - 0.06 0.02 0.01 - - 0.09 Overseas Training (Principals) - - - - - - 0.05 0.01 0.01 - - 0.08 Local Consultants 0.00 - - - - 0.00 - - - - - - Local Training 0.00 - - - - 0.00 - - - - - - Subtotal Technical Assistance 0.00 - - - - 0.00 0.13 0.08 0.08 0.02 0.01 0.32 E. Operations Support 0.01 0.02 0.01 0.00 0.00 0.05 - - - - - - Total 2.85 2.35 0.66 0.30 0.14 6.30 1.66 2.37 1.82 0.75 0.40 7.00 \a included 0.8% of taxes China Vocational Education Reform Project Table 12. Tianjin Detailed Costs Expenditures by Financiers (US$ Million) Province IDA/BRD 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. Investment Costs A. Books 0.02 0.04 0.04 0.02 0.01 0.12 0.01 0.02 0.02 0.01 0.00 0.05 B. Civil Works j 2.81 1.87 - - - 4.68 - - - - - - C. Equipment 0.62 0.93 0.70 0.30 0.16 2.71 0.99 1.49 1.13 0.48 0.25 4.34 D. Technical Assistance Foreign Consultants (Com. 1) - - - - - - 0.02 0.03 0.03 0.01 0.01 0.09 Foreign Consultants (Com. 2) - 0.01 0.02 0.02 0.01 0.00 0.06 Foreign Consultants (Com. 3) - 0.00 0.00 0.00 0.00 0.00 0.01 Overseas Training (Instructors) - 0.07 0.02 0.02 - - 0.11 Overseas Training (Principals) - 0.04 0.01 0.01 - 0.05 Local Consultants - - - - - - Local Training 0.00 0.00 - - - - - - Subtotal Technical Assistance 0.00 0.00 0.13 0.08 0.08 0.02 0.01 0.32 E. Operations Support 0.01 0.02 0.01 0.00 0.00005 - - Total 3.46 2.85 0.75 0.32 0.17 7.55 1.14 1.59 1.23 0.51 0.26 4.72 China Vocational Education Reform Project Table I1. Liaoning Detailed Costs Expenditures by Financiers (US$ Million) Province IDA/IBRD 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. Investment Costs A. Books 0.04 0.06 0.06 0.03 0.01 0.20 0.03 0.04 0.04 0.02 0.01 0.14 B. Civil Works 1 3.41 2.28 - - - 5.69 - - - - - - C. Equipment 0.53 0.79 0.60 0.25 0.13 2.31 1.16 1.73 1.31 0.55 0.29 5.05 D. Technical Assistance Foreign Consultants (Com. 1) - - - - - - 0.02 0.03 0.03 0.01 0.01 0.09 Foreign Consultants (Com. 2) - - - - - - 0.01 0.02 0.02 0.01 0.00 0.06 Foreign Consultants (Com. 3) - - - - - - 0.00 0.00 0.00 0.00 0.00 0.01 Overseas Training (Instructor) - - - - - - 0.06 0.02 0.02 - - 0.10 Overseas Training (Principals) - - - - - - 0.04 0.01 0.01 - - 0.07 Local Consultants 0.00 - - - - 0.00 - - - - - - Local Training 0.00 - - - - 0.00 - - - - - - Subtotal Technical Assistance 0.00 - - - - 0.00 0.13 0.08 0.08 0.02 0.01 0.32 E. Operations Support 0.01 0.02 0.01 0.00 0.00 0.05 - - - - - - Total 3.99 3.14 0.67 0.29 0.15 8.25 1.32 1.86 1.44 0.60 0.31 5.52 China Vocational Education Reform Project Table 10. Jiangsu Detailed Costs Expenditures by Financiers (US$ Million) Province IDAIIBRD 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total 1. Investment Costs A. Books 0.10 0.16 0.17 0.09 0.03 0.54 0.05 0.09 0.09 0.05 0.02 0.29 B. Civil Works ( 3.34 2.23 - - - 5.57 - - - - - - C. Equipment 0.78 1.17 0.89 0.38 0.20 3.42 1.48 2.22 1.68 0.71 0.37 6.47 D. Technical Assistance Foreign Consultants (Corn. 1) - - - - - - 0.02 0.03 0.03 0.01 0.01 0.09 Foreign Consultants (Corn. 2) - - - - - - 0.01 0.02 0.02 0.01 0.00 0.06 Foreign Consultants (Com. 3) - - - - - - 0.00 0.00 0.00 0.00 0.00 0.01 Overseas Training (Instructors) - - - - - - 0.04 0.01 0.01 - - 0.06 Overseas Training (Principals) - - - - - - 0.06 0.02 0.02 - - 0.10 Local Consultants 0.02 0.04 0.03 0.02 0.01 0.12 - - - - - - Local Training 0.09 0.14 0.11 0.07 0.02 0.43 - - - - - - Subtotal Technical Assistance 0.11 0.18 0.14 0.09 0.03 0.54 0.13 0.08 0.08 0.02 0.01 0.32 E. Operations Support 0.01 0.02 0.01 0.00 0.00 0.05 - - - - - - Total 4.35 3.76 1.20 0.55 0.26 10.13 1.67 2.39 1.85 0.78 0.40 7.08 China Vocational Education Reform Project Table 13. Guangdong Detailed Costs Expenditures by Financiers (US$ Million) Province IDA/IBRD 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. Investment Costs A. Books 0.04 0.07 0.08 0.04 0.01 0.24 0.04 0.06 0.06 0.03 0.01 0.21 B. Civil Works . 2.50 1.67 - - - 4.16 - - - - - - C. Equipment 0.40 0.60 0.45 0.19 0.10 1.74 1.14 1.72 1.30 0.55 0.29 5.00 D. Technical Assistance Foreign Consultants (Com. 1) - - - - - - 0.02 0.03 0.03 0.01 0.01 0.09 Foreign Consultants (Com. 2) - - - - - - 0.01 0.02 0.02 0.01 0.00 0.06 Foreign Consultants (Com. 3) - - - - - - 0.00 0.00 0.00 0.00 0.00 0.01 Overseas Training (Instructors) - - - - - - 0.07 0.02 0.02 - - 0.10 Overseas Training (Principals) - - - - - - 0.04 0.01 0.01 - - 0.06 Local Consultants 0.00 - - - - 0.00 - - - - - - Local Training 0.00 - - - - 0.00 - - - - - - Subtotal Technical Assistance 0.00 - - - - 0.00 0.13 0.08 0.08 0.02 0.01 0.32 E. Operations Support 0.01 0.02 0.01 0.00 0.00 0.05 - - - - - - Total 2.96 2.35 0.54 0.23 0.12 6.20 1.32 1.86 1.44 0.60 0.31 5.53 -54- ANNEX 5 ANNEX 5: PROJECT IMPLEMENTATION CHART Sources of Funds Financial Agents Implementation Coordination Advisory Commirrees Agencies Commictees Credit/Loan Ministry of State Education National Account Finance Commission Project Nional /FILO Steering Commtte Advisory ommir ee Committee Special Account Counterpart Provincial Dept. Provincial PIO Funding -inne-- Provincial Advisory Finance Committees County Education Bureau School LocalIndustrial. School Govern. Coordination Advisory Board --Committee committees School PIO ANNEX 6: ORGANIZATION CHART State Education Commision II Dept. of Dept. or Dept. of ept. of Dcp.of DcP inance Forcign Affairs higher Ed Social Science f Dept. o Scicce/ ODept. Dopt Minority Dept. of Teher Dept. of Basic Dept. of Adult Dept. of Dept. of Training Education ,Education Education Supervision Dept. of AV Equipment Audit Educationg L[ Education Policy Central Research Center arch Ins. China Education FILO Examination Coor VTE Research Higher Education Ceiter Institute Press Education People's Education Information Center Press State Council Academic Science/Technology Education Publications Degree Office Development Center Improt/Export Co. -56- ANNEX 7 ANNEX 7: INDICATIVE SUPERVISION PLAN INDICATIVE SUPERVISION PLAN 1. -FILO would have the primary responsibility for coordination of supervision and also assisting the provinces in preparing for supervision. A detailed supervision plan would be prepared by FILO and would be discussed and agreed with the participating provinces. An important element of the supervision would be to monitor progress and reform through adequate use of the monitoring indicators. The Bank would in collaboration with FILO and the provinces supervise the project twice a year and agree supervision terms of reference with them. Following is an indicative supervision plan including the specific skills required by supervision missions throughout the project. -57- ANNEX 7 Subject Date Mission Composition Staff-Weeks 1. Project Launch Workshop/Review October 1996 Technical Educator (TM) 2 of Implementation Arrangements Procurement Specialist 2 for TA Disbursement Specialist 2 Operations Specialist 2 2. Review of TA Implementation May 1997 Technical Educator (TM) 2 Training Specialist 2 Operations Specialist 2 3. Annual Supervision According November 1997 Technical Educator (TM) 2 to Monitoring Indicators Training Specialist 2 Operations Specialist 2 4. Review of Procurement/Dis- April 1998 Technical Educator (TM) 2 burseinient Practices Procurement Specialist 2 Disbursement Specialist 2 Operations Specialist 2 5. Preparation of Mid-term Review September 1998 Technical Educator (TM) 2 Operations Specialist 2 6. Mid-term Review November 1998 Technical Educator (TM) 3 others 6 7. Annual Supervision According June 1999 Technical Educator (TM) 2 to Monitoring Indicators Operations Specialist 2 others 2 8. Review of Reform/Dissemination December 1999 Technical Educator (TM) 2 Training Specialist 2 Evaluation Specialist 2 9. Preparation of ICR May 2000 Technical Educator (TM) 2 Operations Specialist 2 Implementation Specialist 2 10. ICR Mission October 2000 Technical Educator (TM) 2 Implementation Specialist 2 Operations Specialist 2 -58- ANNEX8 ANNEX 8: DISBURSEMENT SCHEDULE Bank Semester, Cumulative, Project Standard FY/Semester S million S million Cumulative, % Profile IA, % 1997 1st 1.5 1.5 5 3 2nd 1.5 3.0 10 6 1998 1st 3.0 6.0 20 30 2nd 3.0 9.0 30 42 1999 1st 4.0 13.0 43 58 2nd 4.0 17.0 56 66 2000 1st 4.0 21.0 70 74 2nd 4.0 25.0 83 82 2001 1st 2.0 27.0 90 86 2nd 2.0 29.0 97 90 2002 1st 1.0 30.0 100 94 2nd 0 0 0 98 La Disbursement profile-Bank standard disbursement profile for the education sector in China. Completion Date: June 30, 2002 Closing date: December 31, 2002 -59- ANNEX 9 ANNEX 9: TECHNICAL ASSISTANCE AND STAFF TRAINING TERMS OF REFERENCE AND TRAINING PROGRAMS INTRODUCTION 1. Consultant services and staff training will be closely integrated, and focused on the reform of the vocational education system. The key specialist staff and principals/ managers who are trained overseas will take a leading part in the programs of course development and management development. The international specialists, who will normally come from institutions which provide overseas training under a link arrangement, will guide and assist with the planning and implementation of these developments. The international specialists and overseas trained key staff will also take a major responsibility in the design and implementation of the domestic staff training programs. 2. The program will have the following features: (a) the overseas training will be custom designed for a group of 5 to 12 experienced key teachers in each specialization (b) the group will attend a seminar prior to the overseas training to agree individual terms of reference for training (c) after the overseas training the key teachers will be responsible for carrying out the program of course and teaching program development, through individual work and attendance at seminars and workshops; (d) the domestic training program for specialist teachers would be based on the new curricula, materials and teaching methods developed in the overseas training and follow-up workshops; (e) The international consultants will conduct seminars and workshops for key teachers after return from overseas to guide and supervise their development work, and also participate in the domestic program of training. COURSE DEVELOPMENT AND SPECIALIST STAFF TRAINING 3. The following majors will be revised and upgraded under the project: -60- ANNEX 9 Electronics Mechanics and mechanical engineering Mechanic-electronic, including automatic control and instrumentation Information Technology Architecture, civil engineering and construction Chemical process, including plastics Textiles and garment making Tourism and hotel services 4. The distribution of these majors by province is shown in Table 1. In each field there are a sufficient number of project schools to enable groups key teachers to be selected to ensure cost effective custom--designed training under the link arrangement, and the related employment of international specialists. Each field actually covers a very broad range of specialist studies, which will be linked through core modules. 5. The strategy and overall plan for course development will be the responsibility of SEdC: Vocational and Technical Education Department, in consultation with the Expert Advisory Comnmittee. The development under the project will concentrate mainly on selected modules, including the laboratory and workshop practice programs, teaching. manuals and related teaching materials and computer software. 6. An outline program for overseas training, and related international consultant inputs for course development is shown in Table 2. 7. Overseas training for key staff will comprise custom--designed program of approximately three months duration of: (a) laboratory and workshop practice, focused on problem solving, using modem equipment as expected to be introduced under the project (b) individually planned study and work programs under tutorial guidance (c) selected lecture programs, specially arranged for the group (d) industrial assignments 8. The Criteria for Selection of Staff for Overseas Training will include: (a) senior teacher status in the selected major in one of the project schools (b) age 35 to 45 (c) commitment, with school endorsement, to participation in the follow-up program of course development and related domestic staff training (d) evidence of reasonable competence in technical English (not the standard English language proficiency test), sufficient to enable satisfactory -61- ANNEX9 progress in a custom designed program in an environment in which the teaching materials are in English, but where there could be backup explanation in Chinese language. 9. The outcomes of the training will include: (a) upgrading of the technical knowledge of the teachers in their main fields of specialization; (b) improved experience and competence in the design and implementation of programs of laboratory and workshop teaching, including the efficient management and utilization of modem equipment and employment of modem practical learning methods; (c) upgrading of teaching methods (d) preparation of work schemes for the continued revision and upgrading of selected parts of the SVS/STS programs, including the design of the follow-up program for individual and group preparation of teaching materials and manuals and the related domestic staff training program. 10. International consultants will be appointed for the six fields shown in Table 2 to provide a total of 24 person-months of services. Each consultant will provide a total of three to four months' service, in a series of four or five assignments, each of three to four weeks duration. Each consultant will have terms of reference that include: (a) guide and supervise the course development team (comprising the key staff who have been trained overseas) in the preparation of teaching curricula, materials, manuals and practical work programs in selected specialist subjects or modules; (b) conduct follow-up seminars and workshops for the key staff, focused on the course developmentand upgrading in selected topics; (c) participate in the domestic staff training in the specialist field. 11. The international consultants will be selected according to criteria that include: (a) good international experience and recognized achievement at a senior level in vocational education in an environment of rapid successful industrial development; (b) high level of technical expertise and experience in the specialization; (c) familiarity with, and preferably direct responsibility, for the design and implementation of the overseas training as described in para. 7; -62- ANNEX9 (d) familiarity with the industrial development and vocational education system in China; (e) capability to communicate in Chinese language 12. Links with a Foreign Vocational Education System. Links will be formed with the vocational education system of one or more countries in the region, under which the programs of overseas training and provision of international consultants will be implemented. [Details of arrangement for the link(s), outline budgets and outline memoranda of agreement or undertakings to be signed with the linking institutions will be prepared by Loan negotiations.] Domestic Training 13. The domestic training program will include the following subprograms: (a) Hotel Services and Garments/Textiles: training for groups of key specialist teachers; (b) Accounting, Food Processing, Printing, Decoration and Animal Pharmaceutical Production: training for specialist teachers from the single school offering the course in each of these majors; (c) Specialist-teacher upgrading for all other majors; (d) Management training (e) Industrial experience (f) Professional qualification upgrading Hotel Service and Garment/ Textile Training 14. Training, for groups of speciali9 teachers, will comprise custom-designed programs of studies and practical work. The training will be based at an institution which has demonstrated excellent development in the field, for example a school assisted under the first World Bank Vocational Education project and judged to be a State level key school, which satisfies the following criteria: (a) the school has active international links (b) the program includes a link with a joint venture enterprise which is already cooperating with the training institution in teacher training; (c) the program will incorporate course development and reform - 63 - ANNEX9 15. The program will be designed as a block course, with periods in the lead school, follow-up work in the key staff members' own schools and industrial experience in firms in the area of the project school, but following a program designed by the lead school and its cooperating enterprises Accounting, Food Processing, etc. 16. For these majors the training program will be provided for a team of teachers from the single project school offering the major. The above principles will apply. The program will be designed and run by an experienced institution which has good international links. The program will also follow a "block release" form with periods of follow-up development work in the project school, with tutorial guidance/supervision from the institution responsible for the training program. Specialist Staff Upgrading Programs 17. These programs will be provided for groups of specialist teachers from all majors of all project schools, covering all aspects, but with emphasis on the upgrading of practical laboratory and workshop teaching and the introduction of new or revised modules and teaching methods. The international consultants, domestic specialists and key staff who are trained overseas will be responsible for the design of these programs and play leading parts in their implementation. Management Training' 18. Short courses based on case studies prepared by staff who participate in overseas study tours combined with taught programs in techniques such as planning, computer based systems; personnel planning and development, etc. 19. Industrial experience will be provided through attachments following a planned syllabus. Professional Qualification Upgrading 20. Two to three-year programs for upgrading staff qualification for staff involved with the project majors. The course programs will be modified to reflect the needs of the project schools. through special teaching methods, etc. Domestic Consultant Services 21. Domestic consultant services will provide assistance with the programs of upgrading courses, preparation of teaching materials and upgrading of management systems. The domestic consultants will be members, or associate members of the Specialist Advisory or Expert Panel. As far as possible they will serve as counterparts to the International Consultants during their assignments in China. The domestic -64- ANNEX 9 consultants should include teachers from first project schools who have been trained overseas under that project. MANAGEMENT TRAINING 22. The program of management staff training and related technical assistance will be designed to assist implementation of the component for improving management and efficiency of vocational education. The program will have three interrelated activities: (a) overseas study assignments, to examine key features in the policy change management, development and financing of vocational education in other countries; (b) domestic courses, seminars and workshops, including: (i) vocational education institutional management skills training for senior staff in schools, PEdCs and education offices, including policy development and analysis, planning, financial management, resource and personnel management and staff development; (ii) design of upgraded school management systems and procedures and related technical skills training including: a. quality assurance through monitoring and evaluation, analysis of performance and follow-up procedures b. efficient management and utilization of laboratories and workshops c. computer-based management systems d. project management at the school level (iii) training of administrative staff in operations, particularly in computer-based systems (c) International consultant participation in the overall design of the program and implementation of key elements of the senior staff training and development of improved school management systems and procedures. Domestic consultants will also participate in the delivery of the programs of seminars, workshops and training. 23. The design and coordination of the overall program will be the responsibility of SEdC, with assistance of the Expert Advisory Committee, and the participation of international and domestic consultant(s). An outline program is set out in Table 3. The detailed program will be designed before negotiations. Table 1: DISTRIBuTION OF MAJORS BY PROVINCE Number of Majors to be Supported in Each Province Major Liaoning Shandong Jiangsu Guangdong Tianjin Total Electronics 2 8 1 4 1 16 Radio/ Communication 1 1 2 Mechanics 1 7 5 4 17 Tool and mold design 2 2 Auto repair 2 3 5 Marine 1 1 Refrigeration and air conditioning 1 1 2 Mechanic-electronic/electrical 1 3 3 7 14 Automatic control/Instrumentation 1 3 7 Metals/Metallurgy 1 1 Information technology (Computing) 9 1 1 3 141 Architecture/Civil Eng./Construction/Water 5 2 5 1 13 Chemical Process/Plastics 1 2 2 2 7 Textiles/Garments 2 2 2 1 7 Services Accounting/finance I I Tourism/hotel services/catering 6 3 1 10 Other Food processing I Veterinary 1 I Printing 1 1 Decoration 1 1 TOTALS 26 26 23 23 22 120 Table 2: OUTLINE WORKING PLAN FOR OVERSEAS TRAINING AND RELATED FOLLOW-UP CONSULTANCY INPUT Overseas Program Date and Number of Staff by Province International Consultant Inputs Major Date(s) Liaoning Shandong Jiangsu Guangdong Tianjin Total I Electronics 1997 2 6 I 3 12 lx 4 week in 1997 & 2 x 4 wk in 1998; & 2x4 wk in 99 Mechanics/ Machinery 1997 1 2 2 3 1 9 Ix 4 week in 1997 & 2 x 4 wk in 1998; 1999 1 I 3 3 1 9 & 2x4 wk in 99 Electro- mechanics 1997 1 1 3 3 5 13 lx 4 week in 1997 & 2 x 4 wk in 1998; & 2x4 wk in 99 Information 1997 3 1 2 6 lx 3 week in 1997 & 2 x 3 wk in 1998; Technology & Ix3 wk in 99 Construction 1998 - 2 1 1 1 5 IX 3 week in 1998, 2x 3 wk in 99, and Ix 3 wk in 00 Chemical/ Process 1998 1 1 2 2 6 As above Total 9 13 13 13 12 60 Table 3: STAFF DEVELOPMENT AND CONSULTANT INPUTS Study Tours Id Consultant Input/Seminars First Tour Second Third Fourth Fifth 1997 1998 1999 2000 2001 09196 01/97 03/97 06/97 09/97 Management Specialization: Topic Main Focus Main Focus Main Focus Main Focus Main Focus National System: * * * * * Policy and Strategy * * * * * Organization *.. * * National and regional planning * * Role of private training sector * * * Financing * * * - * * Financing sources * * * Allocation * * Training Fund systems * * * Cost recovery approaches * * * Quality Assurance * * * * Accreditation Systems Monitoring and evaluation * * * * * Training Institution management * * * i Organization * * * * School/project planning * * Staff and career development * * .... Budgeting and Financing Computer based management system * * * Training systems and methods * * * * * Training programs * * * Curriculum development systems * * * Training methods * * * Trainee performance assessment * * Nonformal training systems * Labor market links * * * * Use of LMI * Formal links with industry * - • Role of industrial training * La All groups will receive an appreciation of all main topics, but each group will also study in depth selected aspects as sliown. Note: Each Consultant Assignment will consist of workshops/seminars covering all development topics, but tliere will be a main emphasis for special lectures as indicated by the blocks. DoMisTic TRAINING PROGRAMS Total Number Number Unit Cost Total Cost (Y'000) Target Location Scope of Trainees in First Year (Y/trainee) Total First Year 1. Key Teachers 1.1 Garments Beijing Cos- Key Teachers: 3 6 x 3 ninth 6 x 2 months 1,500 per month 27 18 tume Voc & months in I month Trng Center Ja blocks 1.2 Hotel Services Key Teachers: 3 6 x 3 mnith 6 x 2 months 1,500 per month 27 is months in I month blocks 1.3 Accounting, Food Process, etc. Teaching groups: 3 5 groups 5 groups 1,500 per month 135 45 months in I month 6 x 3 mnth 6 x I mnth blocks 2. Staff Upgrading Various Specialist subject 30 groups of 10 4 x 10 x Imonth 1,500 per month 1,800 60 teachers: 4 months x 4 months in I month blocks 3. Management 4 seminars per year, 20 seminars 5 000 per seminar 100 for 15 managers 4. Industrial Experience Various nil 5. Professional Qualification Upgrading 240 teachers in 2 & 24 x I year 3,000 per year 1,800 72 Various 3 year programs La The Beijing Costume Vocational and Technical Center was assisted under the first project. It has advanced from SVS status to that of Vocational & Technical Center, with training ranging from SWS through STS to degree level. It has international links: e.g., a cooperation agreement with Huddersfield University, link with the Chicago 13usiness School, currently pursuing links with I long Kong. It cooperates very closely with industry, including Joint Venture industry, e.g., one factory with which it has close links is a joint venture with Japan, concentrating on high quality men's tailoring where the link includes a structured program of teacher training on the production processes. The Principal is of very high caliber. Staff have been trained overseas. The school is proposing reform of the examination system, taking some of the features of the National Vocational Qualification system from the UK through the Huddersfield link. -69- ANNEX 10 ANNEX 10: REPORT ON A TRACER STUDY OF GRADUATES FROM SECONDARY VOCATIONAL AND TECHNICAL SCHOOLS, JANUARY 1994 1. The absence of systematic data on outcomes has long been an obstacle to development of policy on vocational education and training in China. When the first World Bank vocational education project was prepared, for instance, the only such information available was a list of specializations offered by schools and summary estimates of placement of SVS graduates in four provinces.' Partly for this reason, it was decided to precede preparation of a second project by a more systematic tracer survey of technical/vocational school graduates, intended to throw light on the issue of external efficiency. 2. Fifty-three schools, including secondary vocational schools (SVS), secondary technical schools (STS) and some multifunction/combined schools were purposely selected from 18 cities and counties in Jiangsu, Hebei and Shandong provinces and Beijing. In each of these schools principals were asked to select (purposely by course but randomly within courses) 20 graduates from each of the years, 1988, 1990 and 1992, to whom the questionnaire shown in appendix A was administered. The survey was carried out and processed at high speed (between the first mission in November 1993 and February 1994).' 3. Table I shows the characteristics of the respondents to the survey, classified by broad subject category and type of school. Among the 2,218 respondents in this table there is, as can be seen, a wide range of subject coverage, with engineering, agriculture/ forestry and finance/accounting the largest categories. World Bank, Sector Report: Technical/Vocational Education for China's Development, Report No. 6789-CHA, Washington, August 1987. 2 The excellent work of SEdC (which supervised the survey), the schools (which carried it out) and the Beijing Information Management School (which processed the data) is gratefully acknowledged. -70- ANNEX 10 Table 1: CHARACTERISTICS OF GRADUATES BY SUBJECT AND TYPE OF SCHOOL Subject/Type of School: STS SVS Combined Agriculture/Forestry 114 77 131 Art/Design 17 3 53 Computing 6 26 61 Engineering 376 453 166 Finance, Accounting 45 48 127 Foreign Trade 9 1 20 Health Care 47 5 51 Hotel/Catering/Tourism 75 69 15 Office/Business Adm 28 2 15 Other 4 94 80 Totil 721 778 719 4. Table 2 shows the pattern of response by subject and year of graduation.' As can be seen, there are slightly fewer respondents from earlier years (because of smaller course enrollments in those years) but the difference is not great enough to affect analysis. The questionnaire did not contain a question about unemployment (or job waiting) but, as far as can be ascertained, the incidence of unemployment among those contacted was negligible.' Table 2: CHARACTERISTICS OF SAMPLE OF GRADUATES BY SUBJECT AND YEAR OF GRADUATION Subject 1988 1990 1992 Agriculture/Forestry 101 97 124 Art/Design 15 19 39 Computing 27 25 41 Engineering 296 328 310 Finance, Accounting 59 65 96 Foreign Trade 12 10 8 Health Care 52 32 19 Hotel/Catering/Tourism 27 51 82 Office/Business Adm 20 10 14 Other 40 82 56 Total 649 719 789 3 The total in this table is 2,157. The discrepancy with Table I apparently arises because of unanswered . questions, but the number of nonrespondents has not been recorded in any of the Tables. 4 This is in line with expectations, given the state and nature of the labor market and the lapse of time between graduation and survey. -71- ANNEX 10 5. Table 3 shows the number of graduates in each year who had been sponsored in one way or another by enterprises. The fact that the proportion sponsored has reached 26 percent in the case of the most recent graduates, and that 42 percent of sponsorship over the whole period took the form of sponsorship of whole classes, is evidence of the close links between enterprises and technical/vocational schools, probably unique among developing countries, as well as of the overheated state of Chinese markets for skilled labor. Table 3: NUMBER OF SPONSORED STUDENTS AND FORM OF SPONSORSHIP BY YEAR OF GRADUATION Form/Year of graduation 1988 1990 1992 Applied to Enterprise 42 35 27 Whole Class Sponsored 71 99 60 Assigned by School 40 50 112 Other 4 3 6 Total Sponsored 157 187 205 As % of Total Graduates 24% 26% 26% 6. Table 4 shows how sponsorship and its form varied between subjects for the 1992 cohort. The highest rate of sponsorship was, as might be expected, achieved by students on hotel, catering and tourism courses, followed by the very small number of students of foreign trade. Students of computing and engineering were also relatively attractive to sponsors. Problem subjects, from the sponsorship point of view, are art and design, agriculture and forestry, and health care. Table 4: NUMBER OF SPONSORED STUDENTS AND FORM OF SPONSORSHIP, BY SUBJECT, 1992 (As % of total) Applied to Whole class Assigned Other Total Total enterprise sponsored by school sponsored students Agriculture/forestry 2 0 1 1 3 100 Art/design 0 3 5 0 8 100 Computing 7 2 17 0 27 100 Engineering 0 10 15 0 26 100 Finance/accounting 10 1 0 2 14 100 Foreign trade 38 13 13 0 63 100 Health care 0 0 0 0 0 100 Hotel/catering/tourism I 21 63 1 87 100 Office/business adm 7 0 14 0 21 100 Other 13 13 0 2 27 100 Total 3 8 14 1 26 100 -72- ANNEX 10 7. Similar evidence is provided by Table 5, which summarizes the routes through which graduates found their first job. Only 1! percent of the latest batch were assigned jobs by schools. In 1986, in contrast, the first project's sector report found that between 84 and 95 percent of the SVS graduates surveyed in four provinces were assigned to jobs by the schools or the labor department. The categorizations of Table 4 are different, but they do suggest that there has been important progress in the development of labor markets for technical/vocational school graduates over the past few years. Table 5: METHOD OF FINDING FIRST JoB (Percent) Year of graduation 1988 1990 1992 Already sponsored 18 23 15 Practical attachment 21 25 30 Placed by school 16 12 11 Graduate selected firm 27 27 27 Firm selected graduate 16 12 13 Other 2 1 3 Total 100 100 100 8. Table 6 shows how methods of finding a first job differed between students of different subjects in the 1992 cohort. It illustrates the importance of practical attachment in obtaining jobs for graduates in hotel, etc. studies, the apparently strong market position of graduates in computing (50 percent of whom "selected firm") and the still relatively high proportion of graduates in office and business administration placed by schools. Table 6: METHOD OF FlVDING FIRST JOB, BY SUBJECT, 1992 (% of total) Already Practical Placed by Graduate Firm selected sponsored attachment school selected firm graduate Other Total Agriculture/forestry 7 11 to 24 24 24 100 Art/design 5 33 5 18 38 0 100 Computing 8 20 5 50 18 0 100 Engineering 20 27 14 31 9 0 100 Finance/accounting 13 33 11 33 9 0 100 Foreign trade 43 14 0 29 14 0 100 Health care 0 37 16 37 11 0 100 Hotel/catering/touris 17 68 9 5 0 1 100 m Office/business adm 0 24 18 29 29 0 100 Other 23 38 0 23 17 0 100 Total 15 30 11 27 13 3 100 -73- ANNEX10 9. Further evidence of progress in labor market reform is provided by Table 7, which shows the fall in the proportion of graduates obtaining lifetime employment, to a mere 15 percent by 1992. Table 7: TYPE OF EMPLOYMENT OBTAINED, BY YEAR OF GRADUATION (as % of total) 1988 1990 1992 Lifetime 26 26 15 Contract 64 67 65 Temporary 5 4 8 Self-Employed 2 1 1 Family-Business 3 1 0 Other 0 1 11 Total 100 100 100 10. Table 8 shows the variation between subjects in the type of employment obtained, for the 1992 cohort. The least reconstructed subjects, in terms of the proportion still obtaining lifetime employment, are agriculture and health care, the most progressive hotels/catering/tourism, finance/accounting, engineering and computing. Table 8: TYPE OF EMPLOYMENT OBTAINED, BY SUBJECT, 1992 (% of total) Family Lifetime Contract Temoorarv Self-employed business Other Total Agriculture/forestry 35 34 19 8 0 4 100 Art/design 10 64 26 0 0 0 100 Computing 22 71 7 0 0 0 100 Engineering 11 73 7 1 0 8 100 Finance/accounting 11 75 10 2 0 1 100 Foreign trade 29 57 0 0 14 0 100 Health care 35 2 0 0 0 63 100 Hotel/catering/tourism 1 86 0 0 1 12 100 Office/business adm 18 65 0 0 0 18 100 Other 3 66 9 0 0 23 100 Total 15 65 8 1 0 11 100 11. Table 9 shows that there are also important differences between types of school in the extent to which terms of service have changed. The proportion of STS graduates obtaining lifetime employment in 1992 was still 34 percent, while for Combined School graduates it was 14 percent and for SVS graduates as low as I percent. STS graduates are -74- ANNEX 10 also unrepresented among the self- and family-employed. STSs give the impression, in these respects, of being less labor-market-oriented than other types of school, particularly SVSs. Table 9: TYPE OF FIRST EMPLOYMENT BY TYPE OF SCHOOL AND YEAR OF GRADUATION (% of total) 1988 1990 1992 Average STS Lifetime 55 53 34 46 Contract 42 43 61 50 Temporary 3 4 3 Self-Employed 0 0 0 0 Family- 0 0 0 0 Other 0 0 0 0 Total 100 100 100 100 SVS Lifetime 5 2 1 2 Contract 86 97 84 89 Temporary 6 I 5 4 Self-Employed 2 0 3 2 Family I 0 6 3 Other 0 0 2 .1 Total - 100 100 100 100 Combination Lifetime 21 23 14 19 Contract 65 65 61 64 Temporary 5 7 20 11 Self-Employed 4 2 1 2 Family 2 3 12 11 Other 0 2 1 - 1 Total 100 100 100 100 12. Table 10 shows that, although their proportion has fallen, state owned enterprises and government administration still dominate as destinations for graduates. Only 9 percent of 1992 graduates went into an enterprise with any private ownership. -75- ANNEX 10 Table 10: TYPE OF ENTERPRISE IN WHICH FIRST EMPLOYED, BY YEAR OF GRADUATION (% of total) 1988 1990 1992 Government administration 6 6 3 State owned enterprise 72 70 66 Collective 8 13 13 Township/village enterprise 5 6 9 Joint venture 3 4 6 Foreign 2 0 0 Private 1 0 1 Small family business 3 1 2 Total 100 100 100 13. Again there is a significant difference between types of school, as Table 11 shows, with 92 percent of STS graduates still ending up in government or SOEs, compared with 60 percent of combined school and only 53 percent of STS graduates. Joint ventures are clearly beginning to show interest in the last two categories.. The table suggests that the tight connection between STSs and the state sector could usefully be loosened. Table 11: TYPE OF ENTERPRISE IN WHICH FIRST EMPLOYED BY YEAR OF GRADUATION AND TYPE OF SCHOOL (% of total) 1988 1990 1992 STS Govt Admin 7 -- 8 3 SOE 83 80 89 Collective 5 7 5 TVE 4 3 1 Joint Venture 0 2 3 Foreign 0 0 0 Private 0 0 0 Family 0 0 0 Total 100 100 100 -76- ANNEX 10 1988 1990 1992 SVS Govt Admin 4 4 3 SOE 69 64 50 Collective 10 13 15 TVE 3 10 14 Joint Venture 9 8 10 Foreign 0 0 0 Private 1 0 3 Family 3 0 4 Total 100 100 100 Combined Govt Admin 8 5 3 SOE 65 67 57 Collective 10 17 21 TVE - 6 6 10 Joint Venture 3 1 7 Foreign 0 0 0 Private 2 0 1 Family 6 3 2 Total 100 100 100 14. Table 12 shows the variations between subject in the type of enterprise in which 1992 graduates were first employed. Interestingly, the subjects with the highest proportion going to state enterprises are hotels/catering and computing. Engineering graduates are well represented in other types of enterprises, such as collectives, township and village enterprises and joint ventures. Table 12: TYPE OF ENTERPRISE IN WHICH FIRST EMPLOYED, BY SUBJECT, 1992 (% of total) Govt. Joint Family admin. SOE Colleclive TVE venture Foreign Private business Total Agriculture/forestry 6 48 15 9 3 0 6 13 100 Art/design 3 46 41 0 5 3 0 3 100 Computing 5 78 12 0 2 0 2 0 100 Engineering 1 61 13 13 II 0 1 0 100 Finance/accounting 4 71 11 13 0 0 1 0 100 Foreign trade 13 25 13 13 25 0 0 13 100 Health care 0 90 0 0 0 10 0 0 100 Hotel/catering/tourism 0 96 0 1 1 0 0 1 100 Office/business adm 0 50 50 0 0 0 0 0 100 Other 9 75 12 4 0 0 0 0 100 Total 3 66 13 9 6 0 1 2 100 15. Selection of the courses for the survey largely determines the sectors to which graduates go. Light and heavy industry is still the main destination, as Table 13 shows, but the growing importance of the hotel, catering and tourism sector is indicated. -77- ANNEX 10 Table 13: SECTOR OF FIRST EMPLOYMENT, BY YEAR OF GRADUATION (% of total) 1988 1990 1992 Manufacturing 44 45 48 Heavy industry 4 7 8 Transport 3 3 1 Communications 4 3 5 Construction 1 3 3 Commerce 9 8 5 Bank/finance 6 3 5 Hotel/catering/tourism 5 5 10 Other 24 24 16 Total 100 100 100 16. Table 14 shows the differences in sector of first employment between different types of school. The SVSs are still most oriented towards industry, but are apparently losing ground to the STSs in the catering sector. Table 14: SECTOR OF FIRST EMPLOYMENT, BY YEAR OF GRADUATION AND TYPE OF SCHOOL (% of total) 1988 1990 1992 STS Manufacturing 45 49 41 Heavy industry 8 10 11 Transport 1 3 1 Communications 6 3 4 Construction 8 6 4 Commerce 4 2 0 Bank/fiance 0 0 0 Hotel/catering/tourism 0 0 21 Other 27 27 16 Total 100 100 100 -78- ANNEX 10 1988 1990 1992 svs Manufacturing 58 61 52 Heavy industry 3 5 7 Transport 1 6 2 Communications 8 I 9 Construction 1 1 0 Commerce 4 4 8 Bank/finance 2 4 3 Hotel/catering/tourism 10 11 6 Other 13 7 12 Total 100 100 100 Combined Manufacturing 35 26 47 Heavy industry 0 2 4 Transport 4 2 1 Communications 1 3 3 Construction 2 4 4 Commerce 11 17 10 Bank/finance 11 6 11 Hotel/catering/tourism 4 4 4 Other 32 37 17 Total 100 100 100 17. An indicator of the extent to which employers value school graduates is the proportion who have been promoted or changed job since starting work, as shown in Table 15. For the earliest cohort it is as high as 37 percent. A high proportion (in relation to Chinese norms) has also changed employers, of whom 56 percent claimed to have done so in search of better work conditions, 28 percent for higher wages, and 9 percent for a better location. This is a particularly interesting indicator of marketability which is worth regular monitoring. Table 15: INDICATORS OF PRODUCTIVITY AND MOBILITY BY YEAR OF GRADUATION --(% of total) 1988 1990 1992 Promoted or changed job 37 36 24 Changed employer 11 9 10 18. Table 16 shows differences between subjects in the proportion of 1988 graduates who had been promoted or changed employers by the time of the survey. Apart from the small sample of art/design and foreign trade graduates, the highest promotion rates were achieved by office/business administration, engineering and hotel/catering graduates, -79- ANNEX 10 while the highest mobility rates were found among office/business administration and computing graduates. Table 16: INDICATORS OF PRODUCTIVITY AND MOBILITY, BY SUBJECT, 1988 COHORT (% of total) Promoted/ chaneed job Changed employer Total Agriculture/forestry 20 14 100 Art/design 53 13 100 Computing 19 22 100 Engineering 45 7 100 Finance/accounting 36 12 100 Foreign trade 75 25 100 Health care 12 8 100 Hotel/catering/tourism 44 4 100 Office/husiness adm 50 25 100 Other 40 23 100 Total 37 11 100 19. A final indicator of outcomes of training, shown in Tables 17, is average earnings. Levels of earnings in government and SOEs are lower than in other types of enterprise. In general, the current earnings of 1988 graduates in units other than government administration and SOEs compare favorably with average national wage earnings (in the bottom row of the table), given that such graduates have only been working for five years. Table 17: AVERAGE EARNINGS, INITIAL AND PRESENT (1993) BY YEAR OF GRADUATION AND INITIAL SECTOR (Yuan per month) 1988 1990 1992 Government administration Initial 65 73 78 Present 98 102 106 State-owned enterprise Initial 58 60 66 Present 121 101 94 Collective Initial 62 69 75 Present 117 116 112 Town/village enterprise Initial 93 80 99 Present 238 153 146 -80- ANNEX 10 1988 1990 1992 Joint Venture Initial 56 65 67 Present 192 115 117 Private Initial 130 120 193 Present 650 300 301 Family business Initial 105 140 159 Present 240 - 269 National average wage earnings 146 178 226 281 (1993) of which: SOEs 154 190 240 294 (1993) Urban collectives 119 140 176 216 (1993) Other ownership 199 249 31 414(1993) 20. A fully-fledged cost/outcome analysis, using these wage data and the information on cost, enrollment and output is not possible because of the lack of comparable data on other types of school. If similar data were available on secondary academic schools, for instance, the difference between the streams of earnings of secondary technical/vocational school graduates and those of (otherwise similar) lower secondary general school graduates could be compared with cost per graduate. Internal rates of return could even be calculated if desired.' Given the nature of the Chinese labor market (which on balance still displays more of the characteristics associated with a planned rather than a market economy) this would be a hazardous venture, but it would be worth attempting if the control-group data were available. 21. In their absence, the results of the survey reported on in this paper are consistent with a trend towards improvement in the external efficiency of technical and vocational schools. As many as one third of 1992 graduates had been sponsored by enterprises. Most graduates now find jobs by other means than allocation, and an increasing proportion use government labor exchanges for this purpose. The proportion obtaining lifetime employment has dwindled and contracts are now the predominant arrangement. The proportion finding jobs in government administration and state enterprises is still high but falling. A high proportion of graduates had been promoted or changed jobs by the time of the survey and the percentage who had changed employer was also high in relation to national norms. And the current wages of 1988 graduates compare favorably with national average earnings. Although this would require estimating the additional costs of compensatory training of secondary academic school graduates incurred by employers to bring them up to the initial level of technical/vocational school graduates (estimated by some employers to take a few months). -81- ANNEX 11 ANNEX 11: SELECTED DOCUMENTS IN THE PROJECT FILE A. Project Implementation Plan (PIP); B. Revised PIP; C. School Development Plans (82 project schools); D. Revised School Development Plans (82 project schools).  � D �О и т л � о г  신   IMAGING Report No: 15473 CHA Type: SAR