The World Bank In China

Since China began to open up and reform its economy in 1978, GDP growth has averaged over 9 percent a year, and almost 800 million people have lifted themselves out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.

China is now an upper-middle-income country. Although China has eradicated extreme poverty in 2020, an estimated 17.2 percent of the population lived on less than $6.85 a day (in 2017 PPP terms), the World Bank’s Upper-Middle-Income Country (UMIC) poverty line, in 2023.

China’s strong growth has been based on investment and export-oriented manufacturing, an approach that has largely reached its limits, and has led to economic, social, and environmental imbalances. Reducing these imbalances will require a shift from manufacturing to high value services, from investment to consumption, and from high to low carbon intensity.

In recent years, growth has moderated in the face of structural constraints, including declining labor force growth, diminishing returns to investment, and slowing productivity growth. The challenge going forward is to find new drivers of growth while addressing the social and environmental legacies of China’s previous development path. The role of the state also needs to continue to evolve, focusing on providing a clear, fair, and stable business environment, strengthening the regulatory system and the rule of law to further support the market system, as well as ensuring equitable access to public services to all citizens.

Global environmental problems cannot be solved without China’s engagement. Given its size, China is central to many regional and global development issues. Although not the main source of historical cumulative emissions, China today accounts for nearly a third of annual global carbon dioxide and 30 percent of the world’s greenhouse gas emissions – with per capita emissions now surpassing those of the European Union, and on par with the Organisation for Economic Co-operation and Development average – and its air and water pollution affects other countries.  China’s growing economy is also an important source of global demand. Its economic rebalancing will create new opportunities for manufacturing exporters, though it may reduce demand for commodities over the medium-term.

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

Following moderate post-pandemic growth of 5.2 percent in 2023, growth is projected at 4.5 percent in 2024. Domestic demand in China has remained sluggish and contributed to low inflation, while the policy space for stimulus is constrained. Weak business confidence, in part driven by the property market downturn, continues to weigh on growth.

Over the medium term, China’s economy is expected to undergo a structural slowdown. Potential growth has been on a declining trend, reflecting adverse demographics, tepid productivity growth, and rising constraints to a debt-fueled, investment-driven growth model. Structural reforms are needed to reinvigorate the shift to more balanced high-quality growth.

Last updated: April 2024

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

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

World Bank (International Bank for Reconstruction and Development) lending is anticipated to decline over the CPF period and is focusing on supporting China in its contribution to global public goods such as climate mitigation. Knowledge and advisory services will play a growing role in the cooperation with the World Bank. The International Finance Corporation (IFC) will also continue to invest in China’s private sector, promoting high standards and supporting companies producing goods and services with high social and environmental benefits.

The CPF has three broad areas of engagement:

·       Advancing market and fiscal reforms by improving the environment for competition and private sector development; and achieving more efficient and sustainable subnational fiscal management and infrastructure financing.

·       Promoting greener growth by reducing air, soil, water, and marine plastic pollution; strengthening sustainable natural resource management; promoting low-carbon transport and cities; and facilitating the transition to a lower carbon energy path.

·       Sharing the benefits of growth by increasing access to health and social services; and improving the quality of early childhood development.

The CPF is informed by the Bank Group’s Systematic Country Diagnostic (SCD), published in early 2018, and other Bank studies including Innovative China: New Drivers of Growth, published in 2019. The Bank Group is currently undertaking the midterm assessment of the CPF implementation.

Last updated: April 2024

China began its partnership with the Bank in 1980, just as it embarked on its reforms. Starting as a recipient of support from the International Development Association (IDA), the Bank Group’s fund for the poorest, China graduated from IDA in 1999 and became a donor in 2007. It became the World Bank’s third largest shareholder upon completion of the capital increase approved in 2010, the 30th anniversary of its partnership.

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

Research

Joint flagship studies, which began more than 10 years with China 2030: Building a Modern, Harmonious, and Creative Society, have been important for deepening the dialogue on policies and Bank programs. These studies have also provided a model for other middle-income countries. Here are two recent examples of our joint studies with the Development Research Center of the State Council and the Ministry of Finance:

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

Four Decades of Poverty Reduction in China: Drivers, Insights for the World and the Way Ahead, a joint report by the Development Research Center of China’s State Council, the Ministry of Finance, and the World Bank Group reviews China’s success in eliminating extreme poverty. It shows that sustained growth and economic transformation created the opportunities that helped close to 800 million poor Chinese achieve an income above $1.90 per day. The report also shows that public investments in infrastructure and, more recently, increased targeted transfers played an important role in poverty reduction. China’s success was aided by favorable initial conditions and catalyzed by China’s economic reform starting in the late 1970s. Nonetheless, some 220 million Chinese still had incomes below $5.50 a day in 2019. Going forward, the report concludes, China’s social policies need to evolve to address the specific vulnerabilities of this group.

China Country Climate and Development Report (CCDR) is the World Bank Group’s new core diagnostic report that provides analysis and recommendations on integrating China’s efforts to achieve high-quality development with the pursuit of emission reduction and climate resilience. According to the report, climate risks pose a threat to China’s long-term prosperity. Yet, the country’s transition to carbon neutral and resilient development will create transition risks. However, China is also well positioned to turn climate action into an economic opportunity. The report shows that broader structural and market reforms could complement climate action and help achieve China’s climate and development objectives. The CCDR recommends six interconnected policy packages, which will allow China to green and grow its economy at the same time.

A new joint flagship study addressing the challenges of decarbonizing and greening China’s economy is under preparation.

Projects

World Bank-financed projects introduced innovations or piloted new approaches and serve as platforms for knowledge exchange. The current lending program has a strong focus on global public goods such as climate change, environmental protection and reduction of marine plastics. Here are some of our recent projects and results in China:

Decarbonization of the Agriculture Sector

·       The Methane-Reducing and Water-Saving Paddy Rice Program for Results (Hunan), approved in May 2023, supports a program that will reduce methane emissions, improve irrigation and drainage services, and provide agricultural support for climate-resilient rice production in Hunan province, China’s largest rice production area. The program will contribute to global public goods, in particular climate change mitigation, and the creation of replicable and scalable knowledge and experiences for China and other rice-growing countries globally by developing a sustainable model for rice-growing.

Greening of Rural Development

·       The China Green Agricultural and Rural Revitalization Program for Results (Hubei and Hunan), approved in April 2023, supports China’s global public goods agenda by promoting the greening of agriculture and rural development in Hubei and Hunan provinces. The program will reduce greenhouse gas (GHG) emissions from crop and livestock farming, increase carbon sequestration in farmlands, and improve biodiversity protection and restoration in agricultural ecosystems, while strengthening the institutional capacity of local governments to integrate environmental and decarbonization objectives in government rural revitalization plans and investments.

·       The Green Agricultural and Rural Revitalization Program for Results, approved in March 2022, promotes green agriculture and rural development in China’s southwest region and supports the government’s national Rural Revitalization Program. Program activities comprise institutional capacity building, training and agricultural extension services, financial incentives to promote climate-smart and greener agriculture technologies and practices, and investments in rural wastewater and solid waste management services. The program also includes investments in monitoring, evaluation, and verification of environmental outcomes and supports the development of program-based budgets to better link resource use with outcomes at the local government level.

Water Pollution Control and Ecological Protection

·       The Yangtze River Protection and Ecological Restoration Program (Hubei), approved in March 2023, aims to enhance ecological protection and reduce water pollution along China’s Yangtze River basin in Hubei Province. This financing will strengthen ecosystem management, reduce water pollution from plastics and animal manure, and improve wastewater treatment. The program focuses on improving coordination, data collection and sharing, and water management planning and allocation across the river basin.

·       The Yangtze River Protection and Ecological Restoration Program, approved in December 2021, helps enhance ecological protection and reduce water pollution in China’s Yangtze River basin. The program will support coordination across line agencies and levels of government by strengthening data collection and sharing, and by improving water management and allocation. Local level activities will help reduce plastics pollution by developing incentives for the collection of agricultural plastic film, improve wastewater management and collection systems at the township level, and address agricultural pollution through improved management of livestock manure.

·       The Yellow River Basin Ecological Protection and Environmental Pollution Control Program (Gansu and Shandong), approved in March 2024, helps enhance management and protection of land and water resources and restoration of natural ecosystems in the Yellow River Basin. The program will support implementation of sustainable land and water management practices, address soil erosion, water pollution, fire risks, and improve soil and water conservation. The program will also contribute to strengthening government capacity for ecosystem restoration and protection, including at the provincial level.

·       The Yellow River Basin Ecological Protection and Environmental Pollution Control Program, approved in March 2022, helps address water scarcity and ecosystem degradation in China’s Yellow River basin. The program will support China’s strategy for the basin and will contribute to core objectives of the national plan around ecological and environmental protection and promoting water conservation. Provincial level activities will support ecological protection, water use efficiency, and water pollution control in the middle reach of the Yellow River, where erosion, ecosystem degradation, and water scarcity are pronounced.

Plastics Reduction

·       The Plastic Waste Reduction Project (Shaanxi), approved in March 2023, helps reduce plastic pollution from municipal solid waste and agricultural plastic film in rural areas of China’s Shaanxi Province, and improve provincial plastic waste management with potential lessons for the national level. The project will support China’s effort to improve plastic waste management, reduce plastic pollution as well as GHG emissions, strengthen provincial regulations and institutional capacities, and establish models for urban-rural integration in waste management. The experience gained through this project is expected to be replicated and inform reforms and practices in other provinces as well as further policy work at the national level.

·       The China Plastic Waste Reduction Project, approved in June 2021, helps improve plastic waste management at the national and subnational levels in China and reduce plastics pollution from municipal solid waste. At the national level, the project will help develop policy and implementation mechanisms to reduce plastics pollution, improve resource utilization through recycling, and support waste minimization and prevention. At the subnational level, it will help improve the functionality of solid waste management systems, demonstrate the urban-rural integration of solid waste management and plastic pollution control, and pilot enhanced separation of wastes and increased recycling rates.

Last updated: April 2024