Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

China Environmental Export Market Plan

Chapter 9 - Finance Programs and Resources

There are five financial sources pertinent to environmental investment in China today:
1. Government investment funds
2. Policy and commercial bank loans
3. Enterprise investment (SOEs, the domestic private sector, JVs, and WFOEs)
4. Multilateral and bilateral assistance programs
5. Securities

Government investment funds are capitalized primarily through central budget funds earmarked for a specific use, or through national and subnational governments and affiliated agencies via charges and levies on individuals and enterprises. Theoretically, these resources are available to all Chinese legal bodies, including JVs and WFOEs. However, in reality they are primarily reserved for SOEs and occasionally for high-profile JVs that authorities consider to be of special importance. Although these funds are rarely made available to foreign investors, they should be understood, as they constitute a significant source of funding for SOEs that may contract foreign-invested enterprises to service their needs.

The structure and availability of policy and commercial bank loans, like those of government investment funds, are important to foreign investors in terms of how they apply to the Chinese enterprises that may contract their services. Both policy and commercial banks continue to function as the tools of government-directed spending, but commercial banks are becoming increasingly independent in the decision-making process when extending loans to operations that have not been anointed by government planners. Both types of banks claim to be increasingly cognizant of commercial viability when making loan decisions, and at least in theory they are granting loans to those ends. Nonetheless, the ultimate function of Chinese banks is to service the financial needs of state and provincial planners. Very little in the way of preferential environmental loans is available.

Enterprises themselves are expected to produce increasing amounts of money to furnish environmental protection investments. Pressure to do so stems both from government policies decreeing pollution abatement and from commercial competition, which necessitates increased production efficiency. Additionally, access to many governmental funds requires enterprise contributions.

As discussed further in Chapter 10, projects funded by multilateral and untied bilateral assistance offer the most secure point of market entry for foreign exporters and foreign-invested enterprises due to relatively strict assessment and implementation standards as well as guaranteed available hard currency. This chapter includes a brief introduction to the major assistance programs active in China, including points on how best to monitor their current affairs.

Although securities may one day play a significant role in environmental financing, the financial sector remains generally inaccessible to the environmental sector at this time. The securities markets of China are far too unregulated and immature to support creative environmental finance tools, and they are much too protected (i.e., reserved for the purposes of larger, anointed SOEs) to service capital demands for environmentally oriented startups (although a number of environmental enterprises are listed). There is some discussion regarding the development of a green investment fund in China; however, its implementation is still a long way off, and the financial climate requisite for its success is arguably even farther away. Because securities are not immediately applicable, there is no further discussion of them in this chapter.

Government Investment Funds

Local Environmental Funds

Local environmental funds are essentially rotating funds capitalized by pollution levies, or non-compliance charges, imposed upon enterprises discharging pollutants in excess of relevant national standards. Approximately 80 percent of the revenues generated by these funds are redirected to the polluting factories from which they came, in the form of grants (or loans in the case of the "special fund"), with the intention of financing pollution abatement projects. The remaining 20 percent augments EPB budgets and is theoretically aimed at enhancing capacity-building programs. Enterprises submitting proposals for grants from this source are required to match a proportion of the funds sought through means of their own.

Various models for the collection and distribution of these funds exist throughout the country, but in each case procurement and disbursement responsibilities do not extend beyond the provincial government. In all cases, city, county, and provincial government bodies have various degrees of involvement in collecting and redistributing these finances; however, the central government neither receives a share of the revenues nor plays a role in determining how they are used. In most cases, the funds are jointly managed by environmental and financial agencies, and in some cases commercially-oriented investment corporations have been established. The corporations are not, however, completely independent, as they are established and monitored by the associated EPBs.

The Special Fund for Pollution Control

The efficiency of local environmental funds is low because: local environmental funds traditionally have been disbursed as grants; the finances are recycled to enterprises that initially capitalized the funds through levies (reportedly reinforcing a perception among the contributing enterprises that they own the funds); and, after environmental funds have been granted to enterprises, project selection is left mainly to the enterprises' discretion. In 1998, environmental investment policy began shifting from grants to loans and, in keeping with this shift, a special fund for pollution control was initiated.

The working mechanisms of the special pollution control fund are established by EPBs at provincial or municipal levels and remain entirely under the control of the EPB finance departments, except in some regions where semi-independent investment corporations have been established under EPBs to manage the accounts. The fund is capitalized by transfers of 20-30 percent of the revenue from pollution levy funds each year, interest payments on loans paid out through the fund, allocations from local governments, and so forth. Loans are provided at low interest rates (2.4-3.0 percent) to enterprises that previously paid pollution levies, are clearly capable of repaying the loan, can match a determined proportion of the loans from their own finances, and have project objectives (which must be clearly stated at the point of application) that are deemed feasible.

Priority applications for loans through these funds include demonstration projects addressing key pollution issues and projects with eco-efficiency capacities, as well as the closure, revamping, or removal of major polluting enterprises.

Although finance use under the special fund provisions is reportedly more efficient, effective, and directed toward specified and appropriate uses, a number of issues are notable, including the fund's relatively small size, inaccessibility to enterprises that have not paid pollution levies, continued government intervention, and various other administrative issues.

The National Environmental Fund

There has been some discussion of the development of a national environmental fund, ostensibly to facilitate comprehensive, large-scale projects and to act as a high-level monitor of overall investment practices. SEPA has on several occasions solicited opinions from a number of domestic government bodies, as well as the World Bank and the Asian Development Bank, in regard to the merits of establishing such a fund, its feasibility, and what form it might take. There is little indication that such a fund might come into existence any time soon. Many national-level government bodies would need to collaborate and agree upon its form and function, something yet to be attempted or accomplished.

Other Levy-Based Funds

Two other government funds used to finance environmental protection, the levy for enterprise renovations and redevelopment and the levy for urban infrastructure projects, are capitalized through various fees and levies as well as government allocations. Only a small portion of the funds generated by the levy for enterprise renovations and redevelopment is focused on environmental protection (in 1998, 0.28 percent of the fund's total expenditure was environmentally oriented, down from 1.68 percent in 1991). The fund is a relatively small overall contributor to environmental investment and is viewed as an underachiever in this regard.

Funds from the levy for urban infrastructure projects, on the other hand, have increasingly financed urban environmental infrastructure. Local governments are directing more urban infrastructure development funds to environmentally-specific projects (such as water and waste management) and are increasing their own contributions. This fund accounted for 58 percent of domestically sourced investment in pollution control in 1999, as opposed to just over 32 percent in 1991. Nonetheless, urban environmental infrastructure remains woefully inadequate, with urban sewage treatment rates reaching only 30 percent and waste collection rates reaching only 60 percent in 1998. In both cases, the quality of treatment carried out was generally of lesser quality than is necessary to achieve notable results.

Government Support Funds for Environmental Enterprises

The only government ministry-furnished support fund in any way directed toward environmental technology development is the Ministry of Science and Technology's Innovation Fund for Small Technology-Based Firms. The fund's purpose is to facilitate the transformation of scientific research achievements into technological innovations, particularly those that can play a significant role in economic growth. Environmental protection innovations are eligible, and the fund is available to all registered legal bodies in China, including JVs and WFOEs.

The Innovation Fund for Small Technology-Based Firms is gaining attention and is considered to be run relatively well, with accrued finances of over RMB 1 billion as of 1999. Proponents of the development of an environmental industry investment fund may use the Innovation Fund for Small Technology-Based Firms as a model upon which to base a fund specifically geared toward the support of environmental technology development.

A number of other funds and organizations exist, such as the China Foundation for Environmental Protection. However, their activities are minimal. Other than acting as showpieces and bureaucratic administrations, they serve little purpose for environmental protection.

Policy and Commercial Bank Loans

Policy Banks

Of China's three policy banks, the China Development Bank (CDB), the Export-Import Bank of China, and the Agricultural Development Bank of China, only the CDB works to facilitate investment directly associated with environmental protection. CDB loans for environmentally-related projects are generally long-term loans, and they are not offered at preferential interest rates. The China Ex-Im Bank finances environmentally-related investments, but it has no special program geared specifically toward environmental investment.

The CDB apparently intends to draw a balance between functioning as a tool to implement government mandates and granting loans based on commercial viability. All CDB loans undergo thorough feasibility studies that bear significant weight in the final decision to grant a loan. However, political pressure still exerts significant influence, and many loans are provided through the bank to facilitate programs that are deemed critical, despite poor commercial viability. CDB finances are domestically sourced, including a significant amount of capital drawn through bonds issued directly by the bank.

The World Bank and the Asian Development Bank (ADB) work with the CDB in granting joint loans, which constitute a small percentage of the bank's lending. All joint loans are subject to the relatively strict assessment standards of the multilaterals, thereby increasing the assurance of commercial viability for projects that have received the loans. As a result, the likelihood for timely repayment of joint loans is increased. Because the loans are all long term, it is still difficult to determine the prognosis for their return rates.

It is also difficult to assess the commercial viability of non-joint loans by CDB that do not undergo feasibility studies by the multilaterals. World Bank and ADB involvement in the CDB presumably affects the know-how and standards of the development bank, helping it to hone its future viability. In its current manifestation, the commercial intentions of the bank continue to be waylaid by political pressure from central and provincial planners.

Commercial Banks

China's commercial banks, like its policy banks, claim that increased attention is being paid to commercial standards. Particularly when extending loans to small operations, commercial banks increasingly look at the commercial viability of the projects at hand. Commercial banks are gaining more independence from central planners, particularly in relation to lending practices toward smaller operations. In this context, commercial banks are wary of financing environmental projects that are not government mandated, due to the long-term and low-yield nature of such loans. However, commercial banks, like policy banks, generally heed central and provincial government mandates for financial support of large projects requiring massive expenditure.

For the most part, commercial banks do not offer preferential terms for environmental projects. Any firm that does manage to arrange a commercial bank loan for environmental investments pays the standard interest rate of approximately 5 percent. The exceptions are those initiatives with SDPC (or the appropriate lower-level development and planning commission) approval. Such initiatives qualify for a preferential interest payment program, at the discretion of the lending bank. Investors repay the loan at an interest rate of approximately 2 percent; the remaining percentage of the interest is furnished by budgetary finances from the local government most closely associated with the project. This scheme has not seen tremendous success, however, as local governments choose not to accept the burden, banks consider the extra steps of collecting interest from numerous sources troublesome, and commercial viability remains difficult to achieve.

The State Development and Planning Commission and Bank Loans

SDPC approval is necessary to obtain preferential commercial bank loans, policy bank loans, and bilateral or multilateral financing. Regional and local development and planning commissions must review all such projects for feasibility and approval. Any project over $30 million must be approved at the national level.

Enterprise Investment

About 55 percent of the $85 billion that CRAES expects is needed to achieve the environmental goals of the Tenth Five Year Plan is likely to be covered by business enterprises themselves. Most loan programs and preferential funding for enterprise development and upgrades require some degree of fund matching from the enterprises, and regulations, particularly the Three Simultaneous Steps policy, impose significant spending.

The Three Simultaneous Steps policy requires enterprises to take steps to prevent and control pollution simultaneously with the design, construction, and operation of projects, as opposed to addressing pollution issues after project implementation is completed. Revenues generated as a result of compliance with the policy have grown steadily since 1991 and have consistently represented about 4 percent of total expenditure on construction projects. However, the policy's share of total investment in environmental protection has trended down, suggesting increased performance on the part of other investment channels.

Multilateral and Bilateral Assistance Programs

About 15 percent of environmental funding in China is sourced from multilateral and untied bilateral lending agencies. Aside from financial assistance, such lending programs aid Chinese development by guiding investment toward feasible and financially viable projects, by pressing for the development of stronger assessment and implementation standards, and by offering technical assistance, policy advice, seminars, and training.

The Project Cycle

Local or provincial governments initiate project proposals that need foreign financial assistance. Some projects are listed on the Agenda 21 or the Trans-century Green Projects list. MOFTEC screens all proposals and is responsible for ensuring that all loans associated with a particular project can be repaid. Ministry of Finance and SDPC approval are usually required at some point in the initial project cycle, and SEPA may screen projects as well. After clearing all domestic hurdles, a project is forwarded to the lending agencies for the lengthy review and approval processes.

The Ministry of Finance meets with donor agencies annually to discuss financing arrangements. Government and lending agencies then collaborate to analyze project details and feasibility further. Consulting firms should position themselves for future involvement in particular projects at this stage. Detailed feasibility studies are required and the borrowers, who are responsible for project preparation, often need to augment their in-house analytical capabilities. Contractors and equipment suppliers should create contacts at this point to determine whether or not their services or goods will be procured for the project. Once the project details are finalized, the lending institution and various Chinese government bodies must approve the final plan. Implementation generally begins within a few months of final approvals, by which time contractors and suppliers should already be in contact with the appropriate implementing agencies.

Chinese implementing agencies, not lending organizations, are responsible for contracting goods and services. Firms that have identified projects suited to their capacities should approach the implementing agencies, not the lenders. This should be done as early on in the project assessment stage as possible, as waiting for projects to go out for bid before initiating contact will result in failure.

There are a number of ways to monitor business opportunities through multilateral and bilateral assistance programs:

Each institution maintains a Web site, many of which are conscientiously updated. However, not all sites provide information well enough in advance to keep potential bidders prepared to tender in a timely fashion. Firms need to contact these institutions proactively in order to keep a close eye on developments and should demonstrate interest in particular projects as early as possible.
UN Development Business, published by the United Nations Department of Public Information, is a comprehensive resource for enterprises providing goods and services to projects financed by the major multilateral institutions.

World Bank

As of June 2000, World Bank commitments to China were in excess of $34 billion, accounting for a total of 226 projects. About half are still under implementation. The bank's primary targets are poverty alleviation, infrastructure development, and human resource development. Aside from initiatives aimed specifically at environmental protection, many World Bank projects afford residual benefits to those ends; for example, all World Bank assisted power projects aim to incorporate environmental sustainability in their design and therefore draw on environmental industries.

China's environmental protection sector has been the fastest-growing recipient of World Bank loans over recent years. In fiscal year 2000, the World Bank furnished $700 million in loans for three environmentally oriented projects: the $349 million Second Beijing Environment Project, aimed at air and water pollution alleviation in Beijing; the $150 million Hebei Urban Environmental Project, with a strong emphasis on wastewater management and a lesser focus on capacity building for industrial pollution control; and the $200 million Chongqing Urban Environment Project, with an emphasis on solid waste management, wastewater management, water supply and monitoring, and capacity building for urban management and environmental rehabilitation. The bank also works as an implementation agency for the Global Environment Facility (GEF) and the Montreal Protocol.

Future environmental focuses will include air and water pollution, wastewater treatment, vehicle emissions control, and reduced coal use in urban areas. Focus is also shifting toward the poorer and institutionally weaker inland provinces. As of 2000, nearly 70 percent of recent and proposed World Bank lending targeted the nation's interior, as opposed to 50 percent several years earlier. One intention of this shift is to mitigate environmental impact as development in the region is pushed forward.

The structure of World Bank assistance to China is changing, drawing a mixed reaction from experts. The bank still categorizes China as a "developing country," but it is no longer considered one of the less-developed countries. Thus, China is increasingly being expected to fund its own development as its domestic economy continues to grow. Soft loans (i.e., low-interest loans) and grants are no longer being made available. The World Bank Group maintains an extensive Web site (www.worldbank.org/) that contains a section particular to China. Included on the site are numerous resources such as the World Bank Monthly Operational Summary, (www.worldbank.org/html/opr/procure/MOS/contents.html), research papers, project descriptions, and statistics.

Asian Development Bank

The Asian Development Bank (ADB) is a development finance institution owned by 59 members. The bank's goals, which are effected through loans and technical assistance, are poverty reduction, economic growth, human development, improved status for women, and environmental protection. Only nationals of ADB member countries, of which the United States is one, are permitted to bid on service and procurement contracts for ADB-financed projects. The bank places considerable stock in the BOT and build-operate-own models, which are being put to use in the PRC with increasing support from the government.

The ADB's country assistance plan outlines the intended assistance program for the PRC. The social infrastructure and environment section of the plan defines urban development and environmental protection goals including waste management; air and water quality issues; capacity building for and implementation of market-based instruments for environmental management; strengthening of institutions, policies, and management systems; promotion of cleaner technologies; and promotion of sustainable natural resource utilization. The plan also portends a shifting focus toward the western regions, in keeping with China's Western Development Plan.

Guidelines for procurement and consulting services are available online at www.adb.org. The ADB publication Business Opportunities outlines opportunities for vendors and consultants, is updated regularly, and is available online and free of charge at www.adb.org/business/opportunities/default.asp. The bank also maintains two data banks, one each of consulting firms and individual consultants, known respectively as DACON and DICON. Bank staff refer to the data banks during the initial consultant selection process for ADB-financed projects. Registration qualifications and information are available online at www.adb.org/consulting/dacon.asp. The country assistance plan is available at www.adb.org/China/default.asp.

International Finance Corporation

The International Finance Corporation (IFC) operates under the supposition that sustainable economic growth based on private investment and successful entrepreneurship is the cornerstone to poverty alleviation. Thus, it works to further the development of the non-state sector in developing countries, foster the development of financial institutions, and advise private companies and governments in achieving such ends.

In fiscal year 2000, the IFC approved $95 million in financing to China. The current strategic emphasis includes enterprise reform and private sector development, increased involvement in financial sector development, continued involvement in western development, support for industry rationalization and SOE reform, increased private participation in infrastructure and social sector development, and continued limited recourse financing for projects bringing technology and management skills into China.

The IFC's Environmental Projects Unit (EPU) works to accelerate market acceptance of goods and services that benefit the environment and emphasize eco-efficiency by identifying and developing innovative private sector initiatives with environmental benefits and by integrating environmental opportunities into the project cycle wherever possible. The EPU draws on IFC resources and, when applicable, other sources such as the GEF. EPU projects, like all IFC projects, must be within the private sector, be technically sound, have good prospects for profitability, and benefit the local economy. The main sectors targeted by the EPU are biodiversity, climate change and greenhouse gas reduction, energy efficiency, technology development, pollution abatement, renewable energy, solid waste management, sustainable agriculture and forestry, sustainable tourism, water supply and wastewater treatment, and environmental investment fund development. The IFC office in Beijing has expressed a good deal of interest in carrying out environmentally-related projects and can assist investors in accessing the capacities of the EPU.

Enterprises seeking EPU assistance should submit applications via the IFC. There is no formal application process by which to do this. Both Chinese and U.S. companies can directly approach the IFC in Beijing or Washington, D.C. A preliminary review is required before the IFC decides whether a full feasibility study will be carried out.

The IFC's Web site can be accessed at www.ifc.org, where it is possible to link to the EPU's site, www.ifc.org/enviro/EPU/epu.htm. In addition, the IFC's "China's Emerging Private Enterprises," the first comprehensive analytical study of China's emerging private sector, is available online at www.ifc.org/publications/.

Box 9 Opening Doors Through Co-financing and Concessional Funding

The initial outlay of funds by bilateral government organizations to assist development and environmental protection in China can generate contracting opportunities and financing for private investors. Most bilateral assistance is tied to contractors in the country of origin and helps facilitate the development of a market presence that over time may lead to further contracts. Bilateral spending can open channels by which to tie outside funding to contractors that are nationals of the bilateral's origin. In China, where relationships are of great importance, spending to enhance domestic initiatives (such as Canada's spending in support of the China Council for Sustainable Development) has built relationships that have created well-established inroads. Except for the United States, every major donor country engaging in development assistance throughout the world is active in China. The United States has several small-scale operations, such as the Trade and Development Agency (www.tda.gov); however, no U.S. program in China compares to the programs of such countries as Germany, Australia, Canada, and others in terms of scale, financial capacities, or overall impact.

Bilateral assistance agencies that co-finance operations with the World Bank and the ADB are essentially able to tie entire
loan packages for technical assistance projects to consultants and technology providers from their own countries. Technical assistance projects through the ADB often draw grants in the neighborhood of $750,000. Bilateral assistance agencies can cover a portion of such loans in the form of a grant, equaling, for instance, $300,000. In doing so, the bilateral can take over procurement operations for the project and source equipment, consultation, and management training, entirely from its own country, in essence transforming the entire $750,000 (the $450,000 grant from the multilateral and the $300,000 grant from the bilateral) into tied financing. Bilaterals engaging in such co-financing operations have created contracting opportunities for private enterprises in their respective countries, generating revenues several times the outlay of the original grant.

The Canadian government has financed both the first and second five-year budgetary rounds of the China Council for
Sustainable Development, each equaling investment of around $5 million. The China Council for Sustainable Development's
purpose is to maintain high-level consultation on sustainable development between the Chinese government and representatives of governments, donor agencies, and multinational corporations. Through its significant financial and administrative involvement with the council, the Canadian government has provided a tremendous inroad for private Canadian firms. In this way, a country with a relatively small development budget has facilitated good will and private sector contracts for its national industries far exceeding its original investment.

Multilateral Investment Guarantee Agency

The Multilateral Investment Guarantee Agency (MIGA) encourages foreign direct investment in developing countries by furnishing investors with political risk insurance against such possibilities as transfer restriction, expropriation, contract breach, civil disturbance, and war. The agency also helps developing countries promote private investment opportunities through its Investment Marketing Service (IMS). As of late 2000, MIGA had 18 contracts of guarantee, with liabilities totaling $130 million, benefiting infrastructure and manufacturing in China.

Current IMS projects include capacity building for attracting foreign direct investment in Guizhou as well as collaboration with UNDP China and the World Bank's Foreign Investment Advisory Service to promote investment in the Tumen River region, a common border zone delineated for economic cooperation among Russia, North Korea, and northeastern China.

MIGA's Investment Marketing Service manages an on-line information service called IPAnet, which offers information on investment opportunities worldwide. Nearly 300 China-based individuals and organizations participate in IPAnet, and the Web site contains over 200 documents related to business and investment conditions and potential projects as well as links to national and subnational investment promotion agencies.

Applications and other details regarding MIGA are available online at www.miga.org, and IPAnet's Web address is www.ipanet.net.

United Nations Development Program

The programs of the United Nations Development Program (UNDP) in China are funded via UNDP core resources, the GEF, and the Montreal Protocol. Activities focus on sustainable energy development, air and water pollution, natural resource management, and environmental governance. UNDP activities in China can be monitored via UNDP-China's Web site (www.unchina.org/undp/). The site contains descriptions of past and current projects, with occasional brief descriptions of upcoming projects and calls for bidding. Specifics regarding these programs and the potential for business opportunities are generally not noted on the Web site and should be sought directly from UNDP or the implementing agency.

UNDP operational plans in China are laid out through the agency's country programs. CP4, also known as Country Cooperation Framework 1, was completed in 2000. The time is right for interested suppliers and consultants to begin interaction with UNDP and its various implementing agencies. SEPA, Agenda 21, and the China International Center for Economic and Technical Exchanges are UNDP implementation agencies.

UNDP's Web address is www.undp.org. China-specific UNDP information is available at www.unchina.org/un/undp.

United Nations Industrial Development Organization

The United Nations Industrial Development Organization (UNIDO) is a specialized UN program working for the development of sustainable and economically competitive industry in developing nations. Many of UNIDO's current operations in China have components that are directly or indirectly associated with environmental technology providers. Focuses include industrial pollution and waste management, cleaner production programs, the phasing out of ozone depleting substances, and institutional capacity building. Listings of current and past UNIDO programs in China are available online at www.unchina.org/unido.

UNIDO is implementing a recently approved GEF-funded UNDP program to improve industrial efficiency in China's town and village industrial enterprises. TVIEs are generally small-scale collective or privately owned enterprises. They are significant contributors to industrial output and local economies, but they slip through many environmental protection regulatory apparatuses and are thus major contributors to overall pollution discharge as well. The project, currently aimed at small-scale brick, coke, cement, and foundry industries, is in its second phase. After identifying and prioritizing the barriers to energy efficiency in the sector in phase 1 and phase 2 seeks to initiate a market transformation and strengthen regulatory capacities to govern clean development in the sector as it grows. Equipment procurement begins in 2002. Interested parties are encouraged to contact UNIDO and the Ministry of Agriculture (the Chinese government implementing agency) as soon as possible.

Registration information for involvement in UNIDO programs, as well as the weekly informational newsletter UNIDOscope, are available online at www.unido.org. Reviews of China-specific UNIDO projects are available at www.unchina.org/unido. Unfortunately, prospects for the direct participation of U.S. companies in UNIDO projects are uncertain, as the U.S. no longer directly supports UNIDO.

Global Environment Facility

The Global Environment Facility (GEF) is a grant and concessional funding source for environmental and economic growth projects with global implications. Activities focus on climate change, biodiversity, international waters, and stratospheric ozone. Projects are generally implemented through UNDP, the United Nations Environment Program (UNEP), and the World Bank; however, GEF is an independent international institution. GEF financing is intended to cover only the incremental costs of activities with environmental benefits. Incremental costs are calculated by comparing the costs of environmentally superior operations with the costs of similar projects undertaken without additional expenditures to benefit the environment. UNDP manages GEF technical assistance projects in China, and the World Bank manages GEF investment projects.

Project development funds (PDF) are also available through GEF for projects in the development phase that are expected to need partial GEF financing during implementation. Three PDF funding levels exist: PDF Block A grants, of no more than $25,000, are intended for initial pre-feasibility studies; PDF Block B grants, of no more than $350,000, fund specific project preparatory and feasibility studies; and PDF Block C grants, of no more than $1 million, can be used to fund detailed engineering design and complex technical and financial preparatory work. Matching funds from the sponsor are usually required for access to PDF.

For specific details on eligibility for GEF financing and documentation on pipeline processes, see the GEF Web site at www.gefweb.org.

Japan Bank for International Cooperation

In October 1999, Japan's Overseas Economic Cooperation Fund (OECF) and the Export-Import Bank of Japan (JEXIM) merged to form the Japan Bank for International Cooperation (JBIC). Previously the OECF was Japan's operative institution for extending Japanese donations, loans (including a considerable amount of untied loans), and technological cooperation to China. Under the JBIC, the operations that were previously within the jurisdiction of the OECF remain differentiated from those of JEXIM.

In fiscal year 1999, China was the second largest recipient of Japanese overseas development aid, receiving $1.22 billion in direct aid and soft loans. A considerable amount of those funds were spent on major infrastructure, such as airports, railways, and sewage treatment projects, yet of the 19 projects approved by the OECF itself, 14, or 74 percent, were related to environmental improvement, and 13, or 68 percent, were related to inland development. Unlike many bilateral aid programs, the Japanese program offers untied loans for infrastructure development and environmental protection, thereby opening the bidding for some JBIC-financed projects in China to non-Japanese contractors.

However, Japanese domestic pressures to overhaul its financial aid practices, an increasing perception that China's growing economy warrants a more independent approach to the country's development financing, and concerns over Chinese military spending may begin to affect the JBIC's overseas development aid to China and its availability to non-Japanese contractors. Japan's plans for future financial aid to China remain unclear. Loan programs are evaluated on a project-to-project basis, and loans are no longer provided in lump sums of five years at a time. It is also now unclear to what degree JBIC loans are tied to Japanese contractors. A Foreign Ministry spokesman did tell media sources that JBIC aid policy is shifting from major infrastructure development to poverty reduction, technical cooperation to assist human resource development, and environmental protection. Japanese financing for environmental protection may decrease overall.

The JBIC's Web address is www.jbic.go.jp. The OECF Web site is no longer available, but information pertaining to the OECF and its new manifestation is available via the JBIC site.

Export-Import Bank of the United States

For an overview of the Ex-Im's pertinent programs, see Chapter 10 or visit the Web site at www.exim.gov.

Selected References and Web Sites

References

Cao Dong and Sun Rongqing. Environmental Financing in China: A Review. CRAES, SEPA, November 2000.

Gao Shuting, Ge Chazhong, Yang Jintian, Wang Jinnan, Li Xiaoning. Environmental Funds in China: Past Experience and Future Prospects. Beijing: CRAES, Tianjin Industrial Pollution Control Fund Office, November 2000.

Stover, Jim, Justin Harris, and Christopher Adams. Hard Currency Financing for Environmental Projects in China: International Market Insight. U.S. and Foreign Commercial Service, August 1999.

U.S. and Foreign Commercial Service, Beijing. Environmental Project Approval and Financing in China: A Perspective for US Companies. Beijing: November 2000.

Wang Jinnan, Wu Shunze and Luo Hong. Integrating Economic Development and Environmental Protection in China During the 10th Five-Year Plan Period. Beijing: CRAES, November 2000.

Web Sites

Asian Development Bank: www.adb.org

Asian Development Bank Business Opportunities: www.adb.org/business/opportunities/default.asp

Asian Development Bank Country Assistance Plan: www.adb.org/China/default.asp

Export-Import Bank of the United States: www.exim.gov

Global Environment Facility: www.gefweb.org

International Finance Corporation: www.ifc.org

Japan Bank for International Cooperation: www.jbic.go.jp

Multilateral Investment Guarantee Agency: www.miga.org

United Nations Department of Public Information:
UN Development Business: www.devbusiness.com
United Nations Development Program: www.undp.org
United Nations Development Program, China: www.unchina.org/un/undp.
United Nations Industrial Development Organization: www.unido.org

U.S. Embassy, Beijing: www.usembassy-china.org.cn

World Bank Group: www.worldbank.org

World Bank Group in China: www.worldbank.org.cn/English/home.asp

World Bank Monthly Operational Summary: www.worldbank.org/html/opr/procure/MOS/contents.html

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