Breakfast Roundtable with the Asia Pacific Members of The Canadian International Council Transforming ADB’s Partnership with the People’s Republic of China.

Breakfast Roundtable with the Asia Pacific Members of The Canadian International Council

Transforming ADB’s Partnership with the People’s Republic of China

16　 September 2015Asian Development BankEast Asia DepartmentDirector General Ayumi Konishi

Today’s Topics

• ADB-PRC Relationship

• ADB’s PRC Operations to Date

• PRC’s Growth and Challenges

• ADB’s Future Operations in PRC

People’s Republic of China History of Relationship with ADB

• 1986 – Became ADB Member

• 2000 – Opening of PRC Resident Mission

• Cumulative public sector lending till end 2014 is $29.36 billion (2nd largest borrower)

• 2005 – Became ADF donor. Also established PRC Fund for Poverty Reduction and Regional Cooperation

ADB Sovereign Operations in PRC（ cumulative ）

ADB’s Sovereign Lending to PRC （ share of ADF and OCR operations in total)

0%

200%

400%

600%

800%

1000%

1200%

Financial Significance of ADB lending for PRC

Share Holding and Voting Power（ as of 31 December 2014 ）

Member Countries

Subscribed Capital

(% of Total)

Voting Power (% of Total)

Japan 15.677 12.840United States 15.567 12.752People's Republic of China

6.473 5.477

India 6.359 5.386Australia 5.812 4.948Canada 5.254 4.502

Net Resource Transfer to PRC($’000)

Year Disburse-ments

(A)

Repayments (B)

Interest and Other Charges

(C )

Net Resource Transfer

(D=A-B-C)2011 1,697,721 384,394 175,491 1,137,8352012 1,433,399 439,580 208,179 785,6392013 1,262,747 504,339 206,440 551,9672014 1,654,188 559,284 208,292 886,612

ADB Operational Revenue from PRC(as of 31 December 2014)

33%

18%15%

7%

5%

22%

Revenues from OCR Loan, Guarantee and Equity In-vestments

PRC

Indonesia

India

Pakistan

Philippines

Others

２ Major Shifts in Operation

• Since 2000: Focus has moved to the Western Region aiming at poverty reduction and reducing inequality

• Since (around) 2005: Shift from major infrastructure projects to pilot/demonstration projects

Sector and Regional Distribution of ADB Lending(Sovereign, 2011-2014)

Sector Regional

45.4%

23.4%

17.4%

13.8%

Western

Central

East

Nation-wide

33.6%

22.8%

22.2%

13.1%

5.6% 2.6%

Transport and ICT

Agriculture, Natural Resources and Rural Development

Multisector

Energy

Water Supply and Other Municipal Infrastructure and Services

Education

Current Portfolio • Western provinces receive the largest

share of ADB assistance• “Green Portfolio” addressing climate

change and environmental concerns• Attention to TVET and aging issues to

support the integrated urbanization strategy

• Pilot and demonstration projects• Private sector operations complementing

sovereign operations

ADB Financing Share of the Total Project Costs

Private Sector OperationsNon-sovereign operations (lending, investment and guarantees) without the central government guarantee

Country Partnership Strategy

Our Belief

Our Clients

Environmental Infrastructure, water, sold waste management, energy efficiency and clean energy in small/medium cities in the West）

Support to sustainable development using private enterprises technologies and business models

Public-Private Partnership

Private sector’s (including Japan’s) projects in Asia

Financial Institutions

What Drives Us? What Do We Do?

Selection of the technology based on the global best practices

Financial structuring through rigorous due diligence

High environmental standards (e.g., For waste for energy, adopted EU standards. For waste water management, demand the standards for the reuse of treated water)

Require a high level of corporate governance (at OECD level)

Co-financing with private financial institutions including Japanese institutions

14

Loan/Equity approvals are $539 million in 2012, $715 million in 2013 and $1,058 million in 2014

Geopolitical aspects including rapidly increasing oil imports and aggressive development of marine resources are often highlighted in discussing PRC’s energy issues in Japan with little attention to the policies on the use of new and renewable energy sources, particularly the natural sources of energy.

However ADB considers China’s energy choice is a global concern given PRC is the world’s largest CO2 emitter and it is a matter of energy sources fo 1.4 billion people. ADB has however supported a wind-power pojects sponsored by Sumitomo Corp. and Kyushu Electric Company by issuing RMB Bonds.This project contributes to reducing 140,000 tons of CO2 emission.

Case Study

Inner-Mongolia Wind Power Generation ）

China’s Economic Growth and Challenges

The number of poor in the PRC declined from 835 million (1981) to 84.1million (2011) based on the PPP $1.25 per day poverty line

Source: World Development Indicators Database

Inequality is large but gradually improving

Source: NBS, World Bank

Inequality among provinces is reducing

On the relative “wealthiness” of PRCCountry Last Loan Per Capita GNI as

share of US Per Capita Income (Atlas)

Per Capita GNI as share of US Per Capita Income (PPP)

PRC Ongoing (2013) 12% 22%

Korea 1988 (ADB) excl. 1997 emergency loan

20% 31%

Singapore 1980 (ADB) 37% 56%

Japan 1966 (WB) 26% 45% (GDP PC PPP)

Hong Kong 1980 (ADB) 43% 55%

China’s Air Pollution impacts on Korea and Japan

Dust Particles as of noon of 1 February 2013Source: Asahi Shimbun, 1 February 2013

China’s Total Export exceeded US in 2012

Source: ADB staff calculations from WTO data

• Trade significant engine of growth for PRC, especially after WTO• In 2013, PRC became the biggest trading country in the world

Import is also approaching the US level（ Total imports in 2012 exceeded $2 trillion)

Source: ADB staff calculations from WTO data

… as a result, trade surplus is reducing

Source: ADB staff calculations from NBS Yearbooks

Chinese Market is important for its Trade partners

ADB’s Recommendations on the 13th Five Year Plan （１）

• Industrial Transformation• Balanced Rural-Urban

Development• Human Resource Transformation• Environmental Protection

ADB’s Recommendations on the 13th Five Year Plan（２）

• Climate Change• Water Resources• Local Government Debt• China’s Further

Internationalization

CPS Processing Plan

PRC: 5th Plenum Discussion October 2015of the 13th FYP

ADB: Management Committee Meeting November 2015

PRC: Concurrence on CPS December 2015ADB Board circulation December 2015ADB Board discussion January 2016

Future Focus

• PRC would like ADB and the World Bank to increase lending to:–Catalyze reforms–Promote innovation–Address environment and climate

change

• From “Finance++” to “Knowledge++”• Country　 Knowledge　 Plan

Major Future Initiatives

• Beijing, Tianjin, Hebei Air-Quality Improvement Initiative

• Yangtze River Belt

Integrated Development• “One Belt, One Road”

(ADB’s Role as “honest broker”)

Lending Breakthrough

• Adoption of policy-based, and result-based lending

• Innovative Private Sector Operations

• Public Private Partnerships

Future lending volume will be determined in consideration of…

• The need for ADB involvement in PRC’s development

• ADB’s value added in the specific sectors• Regional and global benefits of the

proposed interventions• The Government’s request• Size of the lending programs of other

institutions• ADB’s resource availability

Private SectorApproaches for Future Operations

• Develop private sector operations following public sector’s country and sector strategies to achieve synergy and complementarity

• Priority Area: (i) Crimate Change Mitigation Technologies (renewable energy and energy efficiency) and approaches for adaptation; (ii) safe water supply, waste water treatment, food supply, provision of social services

• Cofinancing with local and international banks and resource mobilization

ADB-PRC Knowledge Partnership

• Major Knowledge Work/Products– Implementation of MOU on Climate Change– Implementation of MOU on Environmental

Protection– Recommendations for 13th Five Year Plan

2016-2020– Series of knowledge work relating to public

finance reform (including Public Finance 2020 study)

Country Knowledge PlanApproaches• Ensure “One ADB” approach• Systematize knowledge creation, management

and use • Leverage global knowledge and provide platform

for South-South knowledge exchange

Themes• Modernize state systems: filling the gaps• Focus knowledge on climate change,

environmental and social sustainability

PRC Contributions to ADB

Asian Development Fund

2005 ADF IX $30 mil.

2009 ADF X $35 mil.

2013 ADF XI $45 mil.

PRC Regional Cooperation and Poverty Reduction Fund

2005 $20 million

2012 $20 million

PRC became ADB donor in 2005...

Full Scale Partnership• “Mutually beneficial” partnership• Addressing challenges money alone cannot solve• Focus on “regional and global public goods”• “Knowledge ++”• Use of ADB as the “platform” for PRC’s

regional contributions• Establish a successful model to engage

in upper middle income countries

THANK YOU!

For inquiries and [email protected]