Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 12762-CiA

STAFF APPRAISAL REPORT

CHILNA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

MAY 9, 1994

MICROGRAPHICS

Report No: 12762 CNType: SAR

Agriculture Operations DivisionChina and Mongolia DepartmentEast Asia and Pacific Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherise be disclosed without World Bank authoization.

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CURRENCY EQUIVALENTS(As of January 15, 1994)

Currency Unit = Yuan (Y)$1.00 = Y 8.70

Y 1.00 = $G.ll

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

1 cubic meter (e3) = 35.31 cubic feet1 hectare (ha) = 15 nu

I ton (t) = 1,000 kg= 2,205 pounds

1 kilogram (kg) = 2.2 pounds

ACRONYMS AND ABBREVIATIONS

BOC - Bank of ChinaCAF - Chinese Academy of ForestryCFF - collective forest farmCRG - Central Research GroupDNR - Division of Nature Reserves ManagementEPG - Environmental Protection GroupEMP - environmental management planERR - economic rate of returnFGHY - fast-growing and high-yieldingFRDPP - Forest Resource Development and Protection ProjectFRR - financial rate of returnGEF - Global Environment FacilityGET - Global Environment Trust FundICB - internatidnal competitive biddingIDA - International Development AssociationLCB - local competitive biddingMAI - mean annual incrementMFO - Ministry of ForestryMIS - management information systemMOF - Ministry of FinanceNAP - National Afforestation ProjectOECD - Organization for Economic Cooperation and DevelopmentPIR - project implementation rulesPMC - Project Management Center in MFOPMO - Project Management OfficeRESP - Research and Extension Support PanelSAR - Staff Appraisal ReportSFF - state forest farmSHF - share-holding farmSOE - Statement of ExpenditureSPCG - Seedling Production Coordination GroupYRPFP - Yangtze River Protection Forest Project

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

CRDIT AND PROJECr SUMMARY

Borrower: People's Republic of China

Beneficiaries: Provinces and Autonomous Regions of Anhui, Fujian, Guangdong,Guangxi, Guizhou, Hebei, Heilongjiang, Henan, Hubei, Hunan,Jiangxi, Liaoning, Shanxi, Shaanxi, Sichuan, Yunnan, and Zhejiang.

Amount: SDR 141.7 million ($200 million equivalent)

Terms: Standard, with 35 years' maturity

Objectives andDescription: The project is designed to enhance the productivity of forest

resources, the efficiency of resource use, and the institutional capacityfor sustainable management in the three major forest types in China:commercial plantations, watershed protection forests, and naturereserves. The project would: (a) expand the supply of commercialtimber and pulpwood through establishment of 620,000 hectares ofintensively managed plantations; (b) develop improved models forwatershed management through establishment of 280,000 hectares ofprotection forests; (c) enhance biodiversity conservation throughimproved management of nature reserves and natural forests; (d)strengthen the operating efficiency of technical support services in theforestry sector, particularly planting materials, research, andextension programs; and (e) strengthen the capacity of forest sectorinstitutions in planning and management.

Benefits andRisks: The project would produce about 114 million m3 of timber, 10.8

million tons of fuelwood, and miscellaneous forest products such asbamboo and resins, with a total value of $6.0 billion at currentfinancial prices over the 33-year life of the project. It would generatesignificant environmental benefits, including increased forest cover,preservation of biodiversity of global significance, and reduced soilerosion, river sedimentation, and flooding. The project would create.over 350,000 person-years of work for 600,000 rural householdsduring the six-year implementation period. Project employment andproduction would lead to a five-fold increase in annual per capitaincome for beneficiaries. It would have a particularly strong impacton poverty reduction, as 20 percent of the beneficiaries presently livebelow the absolute poverty line in resource constrained, remotemountainous areas. The project faces no unusual technical ororganizational risks.

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Estimated Costs: Local Foreign Total($ million) --

1. Plantations 167.8 32.1 199.92. Protection Forests 33.3 4.1 37.43. Nature Reserves MI. igement 12.3 4.6 16.94. Planting Mat./Nursery Mgmt. 28.3 6.5 34.85. Research and Tech. Transfer 3.5 0.1 3.66. Capacity Building 1.2 2.5 3.7

Base Cost 246.4 49.9 296.3

Physical contingency 28.2 5.4 33.6Price contingency 23.4 2.7 26.1

Tota Project Co 298.0 58.0 356.0

Financing Plan:

IDA 147.0 53.0 200.0Proposed GET Grant 13.4 5.0 18.4Provincial Government 43.3 0.0 43.3Prefecture/Municipal Govt. 6.7 0.0 6.7County Government 33.3 0.0 33.3GET Local Countrpart Funds 4.3 0.0 4.3Beneficiaries 50.0 0.0 50.0

Total 2290 58.0 356.0

Estimated Disbursement:

IDA FY 1995 1996 1997 1998 1999 2 2001----($million) --- ------

Annual 24 32 44 50 28 18 4Cumulative 24 56 100 150 178 196 200

Poverty Category: Not applicable

Economic Rateof Return: 18 percent

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CONTENTS

1 Background ....................... 1

A. Introduction ....................... 1B. Forest Sector ....................... 1C. Bank Involvement in Forestry ....................... 7D. Rationale for IDA Involvement ....................... 9E. Rationae for GEF Involvement ....................... 10

2 The Project .11

A. Objectives .11B. Description .11C. Detailed Features .12D. Environmental Aspects. 25E. Compliance with Bank Forestry Policies .27F. Status of Preparation .28

3 Project Costs and Financing .29

A. Project Costs .29B. Financing .30C. Procurement .................... ............... 31D. Disbursement .............. 33

4 Project Oranization and ...................... 35

A. Overall Project Management ............... 35B. Management of Technical Activities ...... ........ 37C. Afforestation Entities .............. 38D. Financial Management .............. 39E. Monitoring, Evaluation and Reporting ........ ...... 41

This report is based on the findings of a pre-appraisal mission in May/June 1993 comprising R. Scobey,N. Jones, S. Shen (IDA), W. Gladstone, A. Gordon, B. Haagsma, Y. Lou (consultants); and an appraisalmission in November/December 1993 comprising R. Scobey, N. Jones, S. Shen, W. Zhou (IDA), P.Cardellichio, S. McCormick, L. Saunders, and M. Wilcox (consultants). The peer reviewers are 0.Baykal (SAIAG), R. Chalk (IENIM), A. Kiss (AF2EA), and W. Magrath (AGRAP). The task manageris Rick Scobey, the Division Chief is Joseph Goldberg, and the Department Director is Nicholas C.Hope.

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5 Production, Markets and Prices ..................... 43

A. Production ...................... 43B. Markets ..................... 44C. Prices ...... ...... ........................... 45

6 Benefits, Justification and Risks ...................... 47

A. Benefits ...................... 47B. Employment and Incomes ........ ............. 47C. Rent and Cost Recovery ...................... 48D. Financial and Economic Analysis ........................ 48E. Risks ....................... 49

7 Agrements and Recommendation ....................... 50

TABLE iN TEXT

2.1 Plantation Area by Species .132.2 Protacdon Forest Area by Species .17.3.1 Project Costs ....................................... 293.2 Project Financing .303.3 Procurement Profile .32

ANNEX

A. Basic Provi icial and Project Area Statistics .................... 52

B. Project Details ...................................... 571. Afforestation Areas by Species and Province .............. 572. List of Project Counties .......................... 583. Sample Afforestation Models ....................... 604. Planting Stock and Nursery Program ................... 625. Research Progm .............................. 686. Extension Program ............................. 787. Training and Technical Assistance Program ............... 81

C. Project Cost Estimates .................................. 821. Afforestation Unit Costs by Species ................... 822. Summary Accounts by Project Component ............... 833. Project Components by Year ....................... 864. Disbursement and Procurement by Investment Category. ... ... 875. Disbursement Schedule for Afforestation Establishment Costs .... 896. Estimaed Disbursement Schedule ..................... 90

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D. Monitoring and Evauation .......... ................... 911. Key Moaitoring Indicatos Ds ble . .... ................T 912. Afforestation Uiit Costs Monitoring Table ..... .......... 943. IDA Supervision Plan . ........................... 96

i. Economic and Financial Analysis ........................ . 971. Production Yields by cies ............... ....... 97. Total Pr3ject Output by Nolume and Value .... .......... 983. Border Prices for Prinzipal Products and Inputs ............ 994. Input and Output i . . . ....................... 1005. Rent and Cost Recovery Aialysis .................... 1026. Financial and Economic An-lysis ..................... 103

F. ScJected Dcuments Available in Project Files .................. 108

1. Pvuemet. Schedulc ........................ .1102. Orgauization Sc. ..Jul................................... 112

MAPS

Project Sites: IBRD 25549

1. BACKGROUND

A. LNTODUCTION

1.1 The Government of China has requested .ntemational Development Associatioi(IDA) assistmce hi finncing a Forest Resource Development and Protection Project (FRDPP)covering seventeen provies. The proposed project would enhan.,e the productivity of forestresources, tbh efficiency of resource mse, and the institutional capacity for sustinablemanagement in the three main forest types of China: commercial dimber plantations, watershedprotection forests, and natme reserves. Project funds would support affotestation, biodiversityconservation, planting material developmnt, research and technology transfer, and institutionalstrengthening activities. The project was identified in March/April 1992 and prepared inNovember/December 1992 by the Ministry of Forestry (MFO); and pre-appraised in May/June1993 and appraised in November/December 1993 by MDA.

B. FoREST .SECrOR

Foes Resources

1.2 China is poor in forest resources, with a total forested area of 131 million hectarescovering 13.6 percent of the land area (supply and demand data for the sector are given inAnnex A). This is equivalent to 0.11 hectares per capita, which is significantly below the worldaverage of 0.77 hectares per capita. The total standing volume of wood is about 11 billion m3 ,or about 9.5 m3 per capita, compared to a world average of 66 rn3 per capita. Chinese forestrytatistics classify forests by type (natural forests and plantations) and by end-use (timber,

shelterbelts, fuelwood, economic trees, and other), as reviewed below.

1.3 Primary and secondary growth "lturaW forests account for 73 percent of forest aresand 95 percent of standing wood volume in China. These forests are primarily utlized fortimber, although a smal amount has been set aside as protected land in nature reserves (seepara. 1.6). The main forests are located in the northeastern provinces of Heitoniang,Liaoning, Inner Mongolia and Jitin, where there are some 41 miDion hecares of mixedconiferous and broadleaf stands covering about one-third of the total land area. These threeprovinces account for about 30 percent of China's total forested urea and standing volume ofwood. The most common species are larch, pine, fir, and spruce, although the forests alsoinclude deciduous species such as birch, aspen and Mongolian oak. The accessible areas havebeen heavily logged and, consequently, most of the commercially viable stands are alreadyexhausted. The remaining 56 million hectares of natural forests are found primarily in thesouthwestern provinces of Yunnan and Sichuan and in small, isolated areas in southeasterChia. These forests, which account for 43 percent of forest area and 62 percent of standingvolume of wood, support about 250 economically valuable tree species, ranging from spruce,fir and larch to tropical hardwoods such as eucalypt and teak.

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1.4 China has pursued an aggressive investment pregram in plantations for four decades,primarily for timber and secondly for watershed protection and fuelwood. The total plantationarea is 34 million hectares with a total growing stock of 550 million rr3 . Many of theplantations established in the 1950s-1980s were located in poor sites and were not well managed,which contributed to low survival and growth rates. However, a new "fast-growing, high-yielding" (FGHY) afforestation program was introduced in 1985 to improve productivity in thesecter. The FGHY program is characterized by: (a) planting sites with soils classified in the twohighest of China's four forest soil classes; (b) improved planting materials; (c) improvedmanagement of seedlings in approved nurseries; and (d) detailed silvicultural prescriptions basedon scientific research, covering site preparation, planting densities, fertilizer applications,tending, and harvesting. A wide variety of deciduous and coniferous species are used, withemphasis on Chinese fir, eucalypt, paulownia, pines and larch (the criteria for species selectionis the ability to achieve certain minimum annual growth rates under given climatic and soilconditions). Of the 17 million hectares of plantations established in 1985-1994, about 4 millionhectares, or 25 percent, represented FGHY plantations. Previous World Bank Group projectsaccounted for the establishment of about one-third of all FGHY plantations.

1.5 China has made the world's largest investment in pvrotection forests designed tocontrol soil erosion and water runoff, stabilize deserts, and realize other environmental benefits.These forests comprise both natural forests and plantations. The "three norths" program,commonly called the "Great Green Wall" of China, involves establishment of a vast network ofsheiterbelts extending from Heilongiiang to Xinjiang. The Yangtze River Protection ForestProject involves establishment of 20 million hectares of shelterbelts in nine provinces along theYangtze River basin. This ten-year program began in 1989 and had planted 3.1 million hectaresby end-1992. A coastal shelterbelt started in 1952 covers 18,000 kilometers of the country'scoastline. The Taihang Mountain afforestation area was begun in 1986 in four northernprovinces to protect farmland from erosion. In addition, under the well-established "four-around" program, villagers are encouraged to plant trees around roads, rivers, homes andvillages. The more recent "plant bare hills" program has been less successful because unsuitablesites were often chosen, and technical supervision and financial incentives were not provided.

1.6 In addition, about 44 million hectares of natural forests and tundra, equivalent to 4.5percent of China's total land area, has been classified as nature -'s-ees to protect biodiversity.China is listed as one of the mega-diversity countries in the worta. With a full range of majorhabitats from ihe permafrost regions in the northeast to the humid tropical climates in the south,the country contains ten percent of the world's plants, mammals, birds, reptiles, and amphibians.The first nature reserve was established in 1956 and there has been a dramatic expansion ofprotected areas over the past four years, with nearly 100 new reserves esta3lished each year.MFO has jurisdiction over two-thirds of the reserves, with the balance managed by the NationalEnvironmental Protection Agency, Ministry of Agriculture, State Oceanographic Administration,and the Chinese Academy of Sciences.

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Wood Supply and Demand

1.7 China is facing a worsening imbalance between supply and demand for woodproducts. It is the third largest consumer of timber in the world, with ai average annualconsumption rate of 300 million m3 in recent years. This consumption can be disaggregated asfollows: industrial roundwood production represents about 150 million rn; fuelwood harvests,logging residues, illegal harvests, and small losses from fire and pests represents about 140million in3; and imports account for the remaining 10 million i 3. About 60 million m3 of theindustrial roundwood output is monitored by government planning agencies and sold in timbermarkets for commercial uses (this timber is referred to as "state plan" production in Chineseforestry nomenclature); the remaining 90 million m3 of industrial roundwood is consumed "on-farm" by the rural populaton primarily for building materials (this timber is referred to as"outside plan" production). All roundwood harvesting is strictly regulated by forestry agencies,which ensure that all harvesting plans conform with the national requirement that the anual cutdoes not exceed the mean annual increment of growth for a forest area. However, there is littlecontrol or monitoring of the 140 million m3 of non-roundwood timber harvesting.

1.8 The level of imports is constrained by a protective policy framework in internationaltrade. The import bill for wood products amoanted to $1.2 billion in 1992, comprising 4.8million m3 of coniferous and non-coniferous logs, 1.0 million rn3 of hardwood and softwoodlumber, 1.2 million m3 of plywood, and miscellaneous other products. China's exports oftimber are negligible, consistng mainly of eucalypt chips to Japan for pulp, although it is amajor world producer and exporter of processed products such as resin and bamboo.

1.9 The consumption level in China has exceeded the annual growth increment of theforests and total imports by about 50 million m3 per year. As a result, about 500,000 hectaresof forest area have been lost each year, leading to increased soil erosion, loss of plant andwildlife habitat, and other environmerial degradation. Most of the deforested areas are matureand over-mature forests, which is contributing to a severe imbalance in the age-class stuctureof forests in China. It is estimated that more than 80 percent of all forest land in China is nowin immature age classes, with the level increasing to more than 85 percent by 2000.Consequently, the annual gap between supply and demand is expected to increase to about 60millicn m3 over the next decade.

1.10 The Government is taing a number of steps to expand supply and manage demand.On the supply side, the government is implementing a wide variety of afforestation programsthat are expected to increase the forest cover from 13.6 to 15.3 percent of total land area by2000. In fact, these existing programs have already made remarkable strides in afforestation:it is estimated that the total volume of standing timber increased from 10.6 biUlion in3 per yearin 1984-88 to 10.9 billion m3 per year in 1988-92; and the mean an-al growth of the forestsincreased from 329 million ni3 in 1984-88 to 366 million m3 in 1988-90. On the demand side,the government has implemented a "Wood Conservation and Substitution Policy," whichmandates the use of substitutes such as iron, steel, and plastic in seven industrial and productareas, ranging from railroad sleepers to coffins. These policy-induced savings amount to about15 million m3 of timber per year.

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Organization of Forest Production

1.11 Timber forests in China are controlled by government agencies or enterprises;collectives; share-holding companies, where individuals or enterprises have pooled theirresources; and individual households. In addition, the railwa', the army, coal mines, and otherentities manage forests for their own uses. 'f he relative importance of these types varies widelyfrom province to province. The property rights regime for thesc different ownership patternsare delineated in national legislation and there has been no problem of tenure insecurity in recentyears.

1.12 State forest land amounts to 52 million hectares, equivalent to 39 percent of totalforest land, and is managed by MFO and its representatives at lower levels. About one-quarterof this volume is virtually unmanaged, consisting of virgin stands in remote, mountainousnorthern regions. The rest is managed by 150 state forest industrial bureaus and 4,200 stateforest farms (SFFs), which together cover 25 million hectares of existing forest area and anadditional 10 million hectares classified as suitable for afforestation. SFFs range in size up toabout 10,000 hectares and can include both natural ard planted forests. They are on public land,and as their plantations ha-e expanded to cover most of the land allocated to them, many haveentered into share or lease agreements with nearby collectives and farmers. Most SFFs am.under the jurisdiction of county forestry bureaus, but each SFF has its own manager andemployees, which can range from several dozen to several hundred. SFF personnel areprimarily involved in farm management and research and casual labor is hired as needed forplanting, tending and harvesting. Most SFFs receive extension support from the provincial andcounty forestry offices and follow improved silviculutual management techniques. While SFFsused to receive direct budgetary grants to finance their operations, they now receive low-interestloans or equity financing against a share of final revenues. As part of the general reformprogram for state enterprises, SFFs operate as independent financial entities and are liable forthe full range of taxes and fees.

1.13 Collective forest farms (CFFs) account for about 10 million hectares, equivalent to8 percent of total forest land, and are owned by townships and villages. They are locatedprimarily on lands allocated to local communes and production brigades during the 1950s. Thenumber of CFFs is increasing as townships and villages designate marginal lands for forestryproduction to create an additional source of income. The farm workers are salaried or casuallaborers employed by the village council. CFFs are much smaller than SFFs, typically under1,000 hectares in area. There is great variation in their scale of operation and quality ofmanagement. Management probleris reflect limited technical support from government forestrystaff, inadequate financing, and weak technical skills. For these reasons, CFFs often enter intoagreements with SFFs and county forestry bureaus for technical assistance in exchange for ashare of the profits.

1.14 Individual households manage 40 million hectares of timber, equivalent to 30 percentof forest land, under long-term contracts with SFFs or CFFs. Contract terms vary greatly acrossareas but generally specify the silvicultural regime, harvesting timetable, and profit sharingarrangements. The households generally provide labor and inputs, while the SFFs and CFFs

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provide the land and technical assistance. The quality of management is generally low, sincethe households reccive limited extension services and face fnanial constraints. While lane useconflicts do periodically occur with leased land, the contract responsibility system has provedto be an extremely effective policy instrument for strengthning tenal security and ensuringexclusive property rights. In addition, households directly control another 30 million hectaresof forests on freehold land, equivalent to 23 percent of total forest land. This land wastransferred from the state to individuals primarily in the mid-1980s and is characterized by lowproductivity and low adoption of improved silvicultural technologies. Most of the productionLs consumed on-farm for construction material and fuelwood and is not subject to taxes and fees.

Prices awd MarkeU

1.15 The forestry sector has been subject to extensive policy reform over the past decadeand has emerged as one of the most liberalized sectors in China. The free market now covers90 percent of all timber production, including all CFFs and individual producers and most SFPs.Market reforms have led to rapid increases in timber prices, with domestic prices now on parwith imported prices. The liberalized markting system basically compises three channels: (a)direct negotiation between buyers and producers at the roadside; (b) small log markets at thecounty and city level that buy logs from forest farms and reell to retailers and final consumers;and (c) regicnal log markets in important provincial markets, such as Fujian, Hubei, Jiin,Sichuan, Henan, and Beijing. A network of timber trading companies is evolving, including 32large agencies at the provincial level and 2,500 smaller agencies at the prefecture and countylevel.

1.16 The state plan, which sets production quotas and mandatory prices, covers only 10percent of national production, mainly from the large state forests in the notheasten provinces.These price controls are designed to ensure that industries and construction projects deemed tobe of national importance receive subsidized inputs. The removal of the remaining price andmarket contrc!s is expected within one or two years.

Wood Processing

1.17 China has an extensive wood proces-; industry, which has expanded rapidly sincethe decontrol of wood prices. There are 2,200 sawmills, with a capacity of 2a.6 miUion nil andan annual production level of 12.8 million mi, and 1,100 panel factories, with a capacity of 4.8million mn and an annual production of 2.4 million m3. Capacity utilization is low because ofshortages of raw materials, parts and supplies. Apart from a few integrated complexes, mostsawmills and wood-based panel factories are small in scale and use labor-intensive technology.The Government is now promodng fiberboard and particleboard manufacturing because theymake more efficient use of smaller logs and residues from sawing and plywood making. China,the leading exporter of resin in the world, also has numnerous resin, tannin extraction, and shellacfactories.

1.18 China is the third largest producer of paper and paperboard in the world, with anannual output of 18 milion tons. Despite this large production, annual per capita consption

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is extremely low at 12 kg, compared with 228 kg in Japan and 102 kg in South Korea. Theindustry faces several problems. First, many factories are small and outdated. Second, about70 percent of output is made from non-wood raw materials such as straw and reeds, which leadsto two problems: (a) the inferior quality of the pulpwood restricts the types of papers that canbe produced, and (b) the high content of naturally occurning silica in the raw material is aserious impediment to recovery of the spent pulping chemicals, which leads to increased waterpollution. Third, many facilities have inadequate chemical recovery systems and effluentdisposal facilities. Consequendy, modernization and expansion of the pulp and paper industryis a high priority for the government, which has recently approved the construction of 11 newfactories and the expansion of 19 existing factories.

1.19 The efficiency of resource use in wood processing remains poor, due to outdatedtechnologies, direct and indirect operating subsidies, weak management, and inadequatecapitalization. The government has embarked on a broad reform program of the entire industrialsector that is designed to make state-owned enterprises operate as independent economic entitiesin the market economy, with full responsibility for losses and profits. The goal is to increaseefficiency through corporatization of enterprises, not through the privatization approach beingpursued in many other socialist economies in transition. However, despite the widespreadintroduction of the contract responsibility system, there is still extensive bureaucratic interferencein the management of wood processing enterprises. As reviewed in the recent country economicmemorandum (Report No. 11932-CHA), additional reform is required in four key areas:increasing enterprise autonomy in personnel and other areas; expanding the shareholdingcorporate structure to more enterprises; restructuring inefficient firms through mergers andenterprise groups; and expanding the role of the private sector in production. The governmentplaces great emphasis on increased joint-venture investment as an important conduit fortechnology transfer and management reform in forestry.

Forestry Research

1.20 Forestry research in China has developed rapidly with an increase of staff from 200in 1949 to 23,000 today worling in 17 national, 45 provincial, and 195 prefectural/countyresearch institutes. The Chinese Academy of Forestry (CAF) is the main national agency forforestry research, with responsibility for managing 16 institutes, research centers, and librariesin Beijing and elsewhere. In addition, most provinces and some prefecures and counties haveforestry research institutes and forestry and agricultural colleges carrying out research programs.CAP is responsible for a wide variety of research programs that are implemented in cooperationwith provincial and college institutes. However, coordination of the research institutes that arenot under the umbrella of CAF is often difficult to achieve because of different sources offunding and different research priorities. Also, field research trals typically require land, funds,and technical support from state forest farms, which are often reluctant to allocate resources to"non-commercial" activities.

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Biodiversity Conservation

1.21 Increasing population pressures and development activities have eroded China's vastbiological resources over the past three decades. The combination of a large population(estimated at 1.15 billion people with an annual growth rate of 1.3 percent) and limited landresources (only ten percent of the land area is arable) has led to extensive loss of habitats foragricultural production, logging, fuelwood collection, and livestock grazing. The ChineseAcademy of Sciences reports that about 200 plant species are believed to have become extinctand an estimated 5,000 species endangered in recent years due to human activity. Hundreds ofspecies of plant and animals are listed in international references as endangered, although thereal status of many species remains unknown.

1.22 In recognition of these problems, the Chinese Government has significantlystrengthened the policy framework to enhance environmental protection in general andbiodiversity conservation in particular. The Forest Law, which was revised in 1986, specifiesgoals of maintaining an average of 30 percent forest cover over the entire country, including 40percent in mountainous areas, and prohibits logging in protected areas. It also imposes strongpenalties for illegal felling of trees and attempts to establish closer links between harvesting andreforestation. A new Environmental Protection Law was promulgated in 1989 that replaces atial law introduced in 1979. It promotes rational use of natural resources and facilitates thedevelopment of a comprehensive system of nature reserves. A Wildlife Conservation Law wasintroduced in 1989 that includes categories of protection for endangered and threatened wildlife.China has also become increasingly visible in international conservation efforts. In addition toparticipation in the UNESCO Man and the Biosphere Program, China ratified the RAMSAR(Wetland) Convention in 1992 and the Biodiversity Convention in 1993.

1.23 A series of environmental strategies and actions phls have been prepared. Anational nature conservation strategy was produced in 1987 that provided a general overiew ofconservation status and trends. A Biodiversity Conservation Action Plan was completed in 1993,with assistance from the Global Enviromnent Facility (GEF) and IDA, and awaits approval bythe State Coucil, which establishes national priorities in biodiversity. A National EnvironmentProtection Acton Plan was recently approved by the State Council.

C. BAnK INVOLVEMENT IN FORESTRY

1.24 Bank Lending. The Bank Group has provided three IDA credits, totalling $412million, over the past decade to support forestry development. In addition, many agriculturalprojects have included significant afforestation components and several agricultural and educationprojects have supported forestry training. An Instituional Development Fund grant wasapproved in 1993 to support capacity building in the sector. As reviewed at the recent countryimplementation review, MFO has managed its portfolio of projects with great commitment andskill and has emerged as one of the most competent implementing agencies in China.

1.25 The first Bank Group project was the Forestry Development Project (Cr. 1605-CHA), approved in 1985 and closed in 1991. It financed establishment of 118,000 hectares of

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new plantations and tending of 166,000 hectares of existing plantations on state forest farms inthree provinces. It also financed related investment for plantation infrastucture, provincialforestry research institutes, county extension stations, and several wood processing factories.The plantation program was effectively implemented ahead of schedule, although the small woodprocessing component faced many operational difficulties. As noted in the recent projectcompletion report (SecM93-684), the project was designed before MFO had introduced its fast-growing, high-yielding plantation program, and, therefore, generated few advances insilvicultural technology.

1.26 The second Bank Group project was the Daxinganling Forest Fire RehabilitationProject (Cr. 1918-CHA), approved in 1988 and scheduled to close in 1994. The project wasdesigned to salvage burned timber and establish a comprehensive fire protection systemthroughout the Daxinganling forest area, following the huge fire that burned one million hectaresof forest on China's northeast border in May 1987. The salvage operation has been hugelysuccessful, with the recovery of 11.7 million m 3 of timber valued at more than $400 million.In addition, fire losses throughout the northern region have been greatly reduced due to newcontrol and detection procedures introduced under the project. The only significantimplementation problems faced by the project involved procurement management by MFO.

1.27 The third Bank Group project was the Natonal Afforestaton Prject (NAP) (Cr.2145-CHA), approved in 1990 anJ scheduled to close in 1997. The project supports theestablishment of 1.2 million heciares of improved commercial timber plantadons on state,collective, and individual forest farms in sixteen provinces. The afforestation program hasintroduced new silvicultural management technologies, with emphasis on development ofimproved planting materials and new _nvironmental management guidelines. In addition, it hasrestructured the national research program to improve institutional coordination between centraland provincial research institutes and to focus research work on high priority operationalobjectives. As reviewed in the Staff Appraisal Report (SAR), NAP was envisioned to be thefirst phase of a long-term Bank Group investment program in forestry. Implementationhas beenextremely strong and the pace and quality of plantation establishment has exceeded SAR targets.Despite some minor problems at start-up, the research program and planting materialdevelopment program have developed well and made significant contributions to raisingsilvicultural technology throughout China.

1.28 Lessons Learned. Previous forestry projects, the 1991 forestry report by theOperations Evaluation Department (Report No. 9524), and the 1991 Board paper on forestry(Report No. R-91-96/1) have generated the following lessons for forestry work in China:

* The importance of new technology development in raising the productivity of theforestry sector in China, particularly new species, improved planting materials,lower stocking densities, and more efficient silvicultural practices;

* The need to improve the links between silvicultural research and afforesttionestablishment, in order to strengthen the process of technology transfer duringproject implementation;

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O The importance of integrating the management of protected and unprotectednatral forest areas into regional forest management plans;

O The importance of market analysis in project preparation, particularly the linkbetween plantation output and the changing requirements of the wood processingsector;

* The importance of deepening state enterprise reform measures in forestry,particularly liberalization of the framework for private sector investment anddevelopment of restructuring programs foz inefficient plants;

* The importance of shifting the locus of afforestation investment away from stateforest farms to collective and individual farms, in line with the Bank's andgovernment's increasing emphasis on non-state forms of production; and

* The need to strengthen the capacity of both public and private sector institutionsin forestry planning, management, and investment.

1.29 In response to these lessons, FRDPP has been designed to give emphasis tointroduction of new afforestation technologies, particularly improved silvicultural practices,improved planting materials, and a wider lange of species; strengthening of new institutionalarrangements to better link research and afforestation activities; integration of protection forestsand nature reserves into project activities; increased afforestation activity on collective andindividual farms, with correspondingly little investment in state forest farms; and capacitybuilding of forestry agencies, particularly in silvicultural skills, information systems, naturalforest management, and private sector investment promotion.

D. RATioNALE FOR IDA INvOLvEmENT

1.30 The Bank's Country Assistance Strategy presented to the Board in August 1993highlighted an intention to support interventions in the agricultural sector aimed at incomeenhancement, poverty alleviation, and sustainable environmental development in regions ofconcentrated absolute poverty. The proposed project is a direct outgrowth of this strategy, asit supports a comprehensive environmental investment program in poor, remote areas acrossChina. The project, which continues IDA's role as the leading donor in forestry in China,would support several technology, institutional, and policy changes that would likely not occurwithout IDA involvement. These include introduction of improved silvicultural techniques,watershed land use models, environmental management guidelines, research priorities,information management systems, and human resource development programs. In addition, IDAinvolvement would facilitate mobilization of GEF investment funds and technical assistance forbiodiversity conservation. The three earlier operations have demonstrated IDA's comparativeadvantage in developing large investment projects that redress technical deficiencies in China'straditional silvicultural system, restructm insdtutional arrangements, and disseminate bestpractices.

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E. RATIONALE FOR GEF INVOLVEMENT

1.31 The nature reserves management component of the project will be submitted forGEF Executive Council endorsement as part of the first tranche of the operational phase of GEF.This is now expected to take place in December 1994. The component, which supportsconservation of nature reserves that are rich in biodiversity of global significance, satisfies boththe general criteria and the specific biodiversity requirements for GEF projects. As reviewedin paras. 2.20-2.26, the component would support a variety of new and innovative activities forChina, particularly new approaches to organization, planning, skills development, informationmanagement, and the integration of local communities into conservation efforts. In the absenceof external funding, MFO would continue to maintain a minimum level of reserve protection andmanagement with few means of increasing community involvement and benefit, which wouldlead to further degradation of natural resources and loss of biodiversity. No other sources oflocal or external funding are available for the proposed conservation activities.

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2. THE PROJECT

A. OBJECrivEs

2.1 The project is designed to enhance the productivity of forestry resources, theefficiency of resource use, and the institutional capacity for sustainable management in the threemajor types of forest land in China: plantations, watershed protection forests, and naturereserves. The project would: (a) expand the supply of commercial timber and pulpwood throughestablishment of intensively managed plantations; (b) develop improved models for watershedmanagement through establishment of protection forests; (c) enhance biodiversity conservationthrough the protection of nature reserves; (d) strengthen the operating efficiency of technicalsupport services in the forestry sector, particularly planting materials, research, and extensionprograms; and (e) strengthen the capacity of forest sector institutions in planning andmanagement.

B. DESCRIU"IoN

2.2 The project would comprise the following six components:

(a) The Intensively Managed Plantation Component would establish 620,000hectares of plantations for timber, pulpwood, and pit props in sixteenprovinces as the second phase of the FGHY plantation program initiated underNAP;

(b) The Multiple-Use Protection Foiest Component would establish 280,000hectares of watershed protection forests in the middle and upper reaches ofthe Yangtze River basin in Sichuan and Hubei Provinces based on newsilvicultural models and improved land-use planning;

(c) The Nature Reserves Management Component, which will be submitted toGEF for financing, would enhance biodiversity conservation through supportfor new management programs in five pilot nature reserves, improvedmanagement of natural forest habitats for Giant Pandas and other endangeredspecies, and development of new training, research, and informationmanagement programs;

(d) The Planting Stock Development and Nursery Management Component wouldraise the quality of planting materials in China through introduction ofimproved genetic materials and nursery management technologies, and

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support the production of the 2.1 billion seedlings required under theafforestation components of the project;

(e) The Research and Technology Transfer Component would strengthen theoperational focus of research and extension in China through provision oftechnical assistance and operating support for eleven priority researchprograms, experimental plantations, and a field extension network; and

(f) The Institutional Capacity Building Component would strengthen the capacityof public and private sector institutions in forestry through support fortraining and technical assistance, development of an information managementsystem, development of a new private sector investment promotion agency,improved natural forest management, and policy studies.

C. DETAILED FEATURES

Intensively Managed Plantation Component

2.3 This component would fiance the establishment of 620,000 hectares of intensivelymanaged plantations in sixteen provinces, as the second phase of the FGHY plantation programinitiated under NAP. As shown in Table 2. 1, conifer species would account for 70 percent ofthe total planting area (primarily Chinese fir, masson pine, and larch), broadleaf species wouldaccount for 23 percent (primarily poplar and eucalypt), and bamboo would account for 7percent. A list of the plantation areas by species and province and a list of the project countiesare given in Annexes BI and B2. The selection of species, planting sites, and provinces werebased on guidelines agreed with IDA during project preparation, as follows. The species wereselected on the basis of their growth potential, climatic and ecological suitability to specific siteconditions, technical experience and acceptance in China, environmental objectives, and productmarketability. The sites were selected on the basis of soil fertility, rainfall, temperature, erosionhazard, access to end-use markets, and the per capita income of the local population. Theprovinces were selected on the basis of land availability, institutional capacity, financingcapacity, and local supply and demand conditions. All project sites have been identified anddetailed technical design plans have already been prepared for 70 percent of the plantations.IDA reviewed and approved the technical plans that have been prepared during appraisal.

2.4 MFO has prepared detailed afforestation models for each species, which covertechnical silvicultural prescriptions, growth targets, establishment costs, and financial andeconomic rates of return. These models draw on the government's existing guidelines forintensively managed plantations that were issued in 1986, entitled "Standards on Fast-Growingand High-Yielding Plantations;" the afforestation models that were prepared in 1989 inpreparation for NAP; and the research results and silvicultural experience that have emergedduring the past three years of NAP implementation. The new FRDPP models incorporateseveral changes to traditional silvicultural management in China, which are expected to improveyields and reduce costs. These include reductions in initial planting densities, less intensive sitepreparation, smaller planting holes, greater reliance on improved planting materials, reduction

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in tending times, and lower fertilizer applications for several species. However, furtherreductions in planting densities and fertilization levels may be warranted in order to optimize thecost-benefit relationship. Therefore, the research component includes an accelerated researchprogram on these topics to determine what, if any, further adjustments would be required to theafforestation models during project implementation (see para. 2.35). IDA reviewed andapproved all the afforestation models during appraisal. An assurance was obtained atnegotiations that all project plantations would be established in accordance with modelsacceptable to IDA; and MFO would complete the review of all technical design plans forplantation sites in accordance guidelines acceptable to IDA by October 31, 1995. Theafforestation models for individual species are summarized below and samples of the models aregiven in Annex B3.

Table 2.1: PLANTATioN AREA BY SPECIES

% ofSpecies Hectares Total

Conifer SpeciesChinese Fir (Cunninghamia lanceolata) 109,200 17.6%Masson Pine (Pinus massoniana) 121,200 19.5%Slash Pine (Pinus elliottil) 30,200 4.9%Loblolly Pine (Pinus taeda) 33,300 5.4%L-arch (Larix kaempferi, Larix olgensis) 140,500 22.7%

Total 434,400 70.1%Broadleaf Species

Poplar (Populus tomentosa, Populus simonii) 66,800 10.8%Eucalypt (Eucalyptus spp.) 38,500 6.2%Black Locust (Robinia pseudoacacia) 13,000 2.1%Other Hardwoods (Schima superba, Ulmus pumila) 23,600 3.8%

Total 141,900 22.9%Bamboo (Phyllostachys pubescens and Arundinaria spp.) 43,700 7.0%

Total 620,000 100%

2.5 Chinese fir is a high-value species native to China that will be grown in tenprovinces in the project. Chinese foresters have an excellent knowledge of its site, silviculturaland growth characteristics, since it has been managed in both natural and planted stands forcenturies. Three different models will be introduced: (a) large diameter timber for theconstruction sector will be grown in 30-year rotations on the highest quality planting sites, withan expected average mean annual increment (MAI) of 17.4 m3/ha; (b) medium diameter timberwill be grown in 20-year rotations on good quality sites, with an expected average MAI of 12.6m3/ha; and (c) small diameter timber will be grown in 20-year rotations on lower quality sites,with an expected average MAI of 11.1 m3/ha. The silvicultural prescriptions are based on theNAP models, which raised productivity through introduction of clonal propagation and more

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efficient fertilization. However, the initial planting densities and the number of weeding timeshave been further reduced to optimize yields.

2.6 Masson pine, an indigenous species with a good growth potential in dry climates andlower quality planting sites in the temperate zone, will be grown in nine provinces. Two modelswill be introduced: (a) pit props for the mining industry will be grown in 20-year rotations ongood quality sites, with an expected average MAI of 11.7 m3/ha; and (b) pulpwood will begrown for the pulp and paper industry in 18-year rotations on lower quality sites, with anexpected average MAI of 9.7 m3l/ha. The NAP silvicultural prescriptions will be used, with theexception of a reduction in the initial planting densities.

2.7 Loblolly and Slash Pines, species introduced from North America with good growthpotential in low elevations and low nutrient red soils, will be grown in seven provinces. Thecurrent yields in China are extremely poor by international standards (about 11 m3/ha) as a resultof the poor quality of the original genetic material. Loblolly is given more emphasis in thisproject than in NAP, as its growth performance and site adaptability are stronger than slash pine.A new silvicultural model was prepared, based on imported seed and improved silviculturalprescriptions, which will produce pit props in 20-year rotations on good quality sites, with anexpected average MAI of 13.2 m3/ha. Three slash pine models will be introduced, based on theNAP silvicultural prescriptions: (a) large diameter timber will be grown in 30-year rotations onthe highest quality planting sites, with an expected average MAI of 12.5 m3/ha; (b) pit props willbe grown in 20-year rotations on good quality sites, with an expected average MAI of 12.0i/ha; and (c) pulpwood will be grown in 18-year rotations on lower quality sites, with anexpected average MAI of 10.8 m3/ha.

2.8 Larch, an indigenous species with a long history of production in the cold,mountainous areas of northeast China, will be planted in seven provinces. Two models will beintroduced: (a) pit props will be grown in 22-year rotations on good quality sites, with anexpected average MAI of 8.9-9.5 m3/ha, depending on the variety; and (b) pulpwood will begrown in 18-year rotations on lower quality sites, with an expected MAI of 8.0-8.5 m3/ha,depending on the variety. The silvicultural prescriptions developed for NAP have been revisedfor the project, with the introduction of clonal planting material, reduction in planting density,and reduction in fertilization.

2.9 Poplar, a fast-growing indigenous species well suited to the harsher climate of thenortheast, will be planted in four provinces. Two models will be introduced: (a) large diametertimber will be grown in 15-year rotations on the highest quality planting sites, with an expectedaverage MAI of 11.0 m3/ha; and (b) pulpwood will be grown in 10-year rotations on lowerquality sites, with an expected average MAI of 12.5 m3/ha. Poplar planting densities are quitelow (330-625 stems/ha) in order to maximize crown closure and yields, which will permitintercropping with peanuts, sweet potatoes, legumes, and wheat in the early years ofestablishment. The NAP silvicultural prescriptions will be used, although the number oftendings will be reduced and a new higher-yielding hybrid variety for pulpwood will beintroduced (Populus simonii carr.XP.nigra).

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2.10 Eucalypt, an introduced species that has been grown for over a century in southernChina, will be planted in four provinces. The NAP silvicultural prescriptions will be used,which incorporated improved management treatments developed by the China Eucalypt ResearchCenter in Guangdong Province. Pulpwood will be grown in 7-year rotations on lower qualitysites, with an average MAI of 13.5 m3/ha.

2.11 Black Locust, a fast-growing species in the north introduced from North America,will be grown in one province. The NAP silvicultural model will be used, which will producepit props in 15-year rotations on the highest quality sites, with an expected average MAI of 5.6m3/ha. Other broadleaf trees, primarily Schima superba, will be planted in six provinces for avariet, of purposes, including fire breaks, nitrogen fixation, tannin production, and constructiontimber. The growth and production characteristics of these broadleaf species fit well into theintensively managed plantation program. However, they have not yet received much attentionin research and genetic improvement, as a result of their minor importance in afforestationefforts; consequently, the current silvicultural prescriptions may not realize their full productioncapacity.

2.12 Bamboo plantations will be established under the project to produce fiber for thepulp and paper industry. Two improved models were prepared, one for new establishment andone for rehabilitation of existing degraded stands, based on new research findings from theResearch Institute of Sub-Tropical Forestry in .7hejiang Province. The new managementprescriptions include a higher initial planting density, later harvesting of shoots and culms toencourage greater interim stand density, a shift in the timing of weeding, and new harvestingprocedures.

2.13 The component would finance the following costs of plantation establishment: (a)all labor requirements for site preparation and planting in the first year and tending in the firstto third years; (b) materials and equipment, including seedlings (see paras. 2.30-2.3 1), fertilizer,pesticides, and small guard/storage sheds; and (c) indirect costs related to survey and design,information management, extension (see paras. 2.37-2.38), and supervision. Disbursementarrangements for plantation establishment are reviewed in para. 3.8. Plantation establishmentcosts in China are among the lowest in the world as a result of the reliance on labor-intensivetechnologies and low wage rates. Ihey average around yuan 3,000 per ha, ranging from yuan2,100 for Schima superba to yuan 3,600 for Chinese fir. Plantation establishment would bephased over four years, with 20 percent completed in the first year, 30 percent in the secondyear, 35 percent in the third year, and 15 percent in the fourth year. An assurance was obtainedat negotiations that the annual work plan and financing plan for the plantation component forthe next calendar year would be furnished to IDA for review by December 31 of each year.

Multiple-Use Protection Forest Component

2.14 This component would finance the establishment of 280,000 hectares of multiple-useprotection forests in Sichuan and Hubei Provinces as part of the government's ongoing YangtzeRiver Protection Forest Project (YRPFP). These forests are designed to improve land-usemanagement in key watersheds in the middle and upper reaches of the Yangtze River basin that

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suffer from severe soil erosion, flooding, and river sedimentation problems. Several changesto the traditional protection forest technology practiced in China would be introduced, asfollows.

O Protection forests are typically established as inviolate islands of conservation inChipa. in which economic development activities and local community use of theresource are severely restricted. Instead, the component will support developmentof multiple-use management of protection forests, which integrates non-consumptiveeconomic activities -- such as production of timber, fruit and nut orchards, andmedicinal plants -- with afforestation for environmental benefits. Under thisapproach, the economic welfare of local communities is maximized, whichcontributes to improved incentives to manage the forests on a sustainable basis.

* The component moves away from the planning of protection forests as free-standing, isolated forestry investments. Instead, the project sites form part of acomprehensive land-use planning exercise for all watersheds in project areas. Thethree ministries that participate in the YRPFP (MFO, Ministry of Agriculture, andMi ry of Water Resources) have developed an integrated land-use model for allproject areas that specifies agricultural, forestry, and conservation engineering zonesfor development. This component would finance the activities designated forforestry zones; related activities in the other zones would be financed undergovermnent budgetary allocations outside of the project.

* The afforestation models used in protection forests have traditionally been basedon large tracts of monoculture. Instead, the component will introduce a variety oftree, shrub, and grass species, which will promote greater biodiversity, reduce theincidence of pests and disease damage, and promote the development of differentcanopy levels. Particular emphasis has been given to integration of conifers andhardwood species for biodiversity conservation; and development of multi-tiered,vertically stratified canopies to minimize soil erosion and water runoff.

* Protection forests are typically subject to little management after establishment,which undermines long-term, sustainable development of the resource. Protecdonforests financed under the project will involve periodic tending and thinning toensure efficient nauWal regeneration of the stands throughout the life of the forest.

2.15 Two different systems will be used to establish protecdon forests under thecomponent. In areas that are completely deforested, afforestation entities will plant a varietyof new conifer and broadleaf species. As shown in Table 2.2, this system accounts for about60 percent of all protection forest planings. In areas that are denuded but retain a sufficientnumber of healthy seed-bearing trees, the afforestation entities would "close the hillside" toeconomic activity and allow the forest to regenerate naturally. Some "enrichment" plantng willbe required on one-tird of these sites, where there are patches of heavily deforested areas. Thehill closure system restricts "consumptive" use of forest resources, such as clear-cutting of trees

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for fuelwood or building material, but permits some controlled use of forests in line with agreedenvironmental management guidelines, such as grass cutting, and limited fuelwood collection.

Table 2.2: PRoTECJ7oN FOREsM AREA BY SPECEs

% ofSpecies Hectares Total

New PlantingMasson Pine (Pinus massoniana) 32,000 11.4%Chestnut (Castanea mollissima) 29,000 10.4%Chinese Fir (Cunninghamia lanceolata) 25,000 8.9%Sawtooth Oak (Quercus acufissima) 22,000 7.9%Pear (Pyrus spp.) 4,500 1.6%Eucommia (Euconuia ulmoides) 8,700 3.1%Masson Pine/Sawtooth Oak 16,800 6.0%Cypress/Alder (C4pressusfunebrisfAlnus spp.) 15,000 5.4%Sumac/Birch (Rhus chinensis/Betulaplatyphylla) 7,000 2.5%

Total 160,000 57.1%Hill Closure

With Enrichment Replanting 40,000 14.3%With No Replanting 80,000 28.6%

Total 120,000 42.9%

Total 280,000 100%

2.16 The selection of planting sites, species, and provinces were based on guidelinesagreed with IDA during project preparation, as follows (a list of the protection forest areas byspecies and province, and a list of the project counties are given in Annexes BI and B2). Thewatersheds were selected largely on the basis of erosion hazard and rate, importance in YangtzeRiver hydrology, and technical parameters such as rainfall and temperature. Al project sitesare located directly along the Yangtze River, or its first and second class tributaries, and faceaverage soil erosion rates above 4,000 tons per square kdlometer per year. The main sites aregrouped around the steep slopes of Dabieshan Mountain in eastern Hubei, the lower hils of theThree Gorges area in western Hubei 1, and the Chuandong basin in eastern Sichuan. All siteshave been identified and detailed technical design plans have already been prepared for 60percent of the plantations. IDA reviewed and approved the technical plans that bave beenprepared during appraisal.

2.17 The species were selected largely on the basis of climatic and ecological suitabilityto specific site conditions, environmental management objectives, and the socio-economicrequirements of the afforestation entities for income generation, fuelwood, and other forest

I No project sites would be affected by the construction of the proposed Three Gorges Dam.

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products. The main species include (a) masson pine (often interplanted with broadleaf species),Chinese fir, sawtooth oak, and mixed stands of mourning cypress and a.der, all producingtimber; (b) Chinese chestnut and pear, grown for nut and fruit production; (c) eucommia, whosebark is used as a raw material for medicine; and (d) Chinese sumac, which produces a rawmaterial used to produce acid for the tanning industry. The timber species will be managed tooptiniize natural regeneration of the forests and soil and water conservation benefits.Consequently, their silvicultural prescriptions and harvesting programs will not maxniizebiological production and financial returns, as with the intensively managed plantations.Nonetheless, they will produce a significant volume of building poles during the thinning periods(years 13 and 19) and industrial roundwood timber during the regeneration cutting periods (year25 and every 5 years thereafter).

2.18 MFO has prepared detailed afforestation models for each species, which covertechnical silvicultural prescriptions, growth targets, establishment costs, financial and economicrates of return, and environmental benefits. These models draw on the govermnent's existingguidelines for protection forests that were developed in 1989 for the YRPFP as well as the pastfour years of implementation experience under the YRPFP. The models were further refmedduring project preparation to lower establishment costs, increase financial returns, and improveenvironmental benefits. The main changes included different planting materials; reduction infertilization; reduction in the size of planting holes and the intensity of site preparation;introduction of vegetative hedges along contours to increase water percolation and slow surfacerunoff; and introduction of structural conservation measures on steep slopes, such as checkdams,silt traps, and diversion drains. IDA reviewed and approved all the afforestation models duringappraisal. An assurance was obtained at negotiations that all protection forests would beestablished in accordance with models acceptable to IDA; and MFO would complete the reviewof all technical design plans for protection forest sites in accordance with guidelines acceptableto IDA by October 31, 1995.

2.19 The component would finance the following costs of protection forest establishment:(a) all labor requirements for site preparation, planting, and conservation works in the first yearand tending in the first to third years; (b) materials and equipment, including seedlings (seeparas. 2.30-2.31), fertilizer, pesticides, and small guard/storage sheds; and (c) indirect costsrelated to survey and design, information management, extension (see paras. 2.37-2.38), andsupervision. Disbursement arrangements for establishment costs are reviewed in para. 3.8.Establishment costs would be significantly lower for the protection forest component than theplantation component, as a result of lower quality planting materials and stocking densities, andless fertilization and site preparation. They average around yuan 2,000 per hectare for timberspecies and yuan 5,000 per hectare for fruit and nut species. Protection forest establishmentwould be phased over four years, with 20 percent completed in the first year, 30 percent in thesecond year, 35 percent in the tiird year, and 15 percent in the fourth year. An assurance wasobtained at negotiations that the annual work plan and financing plan for the protection forestcomponent for the next calendar year would be furnished to IDA for review by December 31 ofeach year.

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Nature Reserves Management Component

2.20 This component is designed to strengthen biodiversity conservation in nature reservesthrough introduction of new conservation technologies, capacity building of sectoral institutions,and strengthening of information and research services. It would comprise five sub-components,which are summarized below.

2.21 Nature Reserves Management. This sub-component would strengthen themanagement of five nature reserve areas of international significance as a pilot exercise tointroduce new biodiversity management techniques in China. The areas include: Xishuangbanna,a cluster of five sub-reserves in southwest Yunnan Province; Poyang Lake, China's mostimportant wetland site, located in Jiangxi Province; Wuvishan, the highest and most biologicallydiversc, peak in southeast China, located along the borders of Fujian and Jiangxi Provinces;Oinlina Mountains of Shaanxi Province, comprising four nature reserves; and Shennongiia, anarea of very -ich forest biodiversity in Hubei Province. The sub-component would support thefollowing: (a) preparation of new management plans for the five reserve areas; (b) strengtheningof field-level protection through financing of guard posts, field kits and other miscellaneousequipment, new communications systems, and a new incentive bonus scheme for guards andsupervisors; and (c) expansion of local participation in reserve management through introductionof "co-management" contracts between communities and reserves (which identify the respectiveroles and responsibilities in resource use in reserves), establishment of new communityinvestment funds to support non-consumptive and conservation-oriented economic activities, anddevelopment of new information and education programs to strengthen local appreciation forbiodiversity values. The emphasis on community participation in reserve management representsan importai., innovation to the current management system, which will involve introduction ofnew techniques such as participatory rural appraisal, group facilitation, and community resourcemanagement plans.

2.22 Natural Forest Mana ement. This sub-component would restructure the managementof natural forests adjacent to the Qinling reserve group as a pilot exercise to resolve biodiversityland use conflicts. As with many reserves, state timber harvesting enterprises have over-cutnatural forest areas adjacent to the Qinling reserves, which has degraded a small but importantcorridor for the passage of Giant Pandas outside of the reserve boundaries. The componentwould support the following policy and institutional reforms to balance the competing objectivesof economic development and panda preservation: (a) the forest area would be restructured intoa "score zone," which would comprise the main panda habitat and be legally designated as a newnature reserve, and an "experimental zone," where sustainable harvesting of timber wouldcontinue to be permitted; (b) the labor force of the state timber enterprise in Changqing wouldbe reduced by about 700 workers in line with the revised harvesting program, with the redundantlabor redeployed to less consumptive and more conservation-oriented economic activities; and(c) new silvicultural management practices would be introduced in the experimental zone toensure that harvesting and afforestation remains consistent with the preservation of the corezone. A commitment was obtained during the pre-appraisal of the proposed GEF project thatall thinning, harvesting, and other consumptive activities would cease in the proposed core zoneas of December 1, 1993. In addition, the designation of the proposed core zone area as a

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national-level nature reserve would be sought as a condition of effectiveness of the proposedGlobal Environment Trust Fund (GET) grant.

2.23 These policy reforms would be supported with the following investment activities.First, the protection of the core zone would be financed, including preparation of a managementplan, support for biophysical and socioeconomic inventories, and establishment of guard postswith related equipment. Second, the "Changqing Livelihood Fund" would be established, whichwould provide grants or low-interest loans to individuals or enterprises to support developmentof new, environmentally sustainable employment activities for redundant workers. Investmentssupported by the Fund would meet specified economic, financial, and environmental criteria.Proposed investments include a medicinal herb processing plant, a fungus production andprocessing plant, agricultural crop and livestock production, and township/municipal servicessuch as restaurants and rest houses. Guidelines for the operation of the Fund and the selection

iteria for sub-projects would be agreed during the appraisal of the GEF project. An assurancewould be sought at the negotiations of the proposed GET grant that the Fund would beimplemented in accordance with these guidelines. Third, the improved management of theexperimental zone would be financed, including preparation of a forest management plan,afforestation costs directly related to the preservation of the adjacent core zone area, andtechnical assistance costs related to the introduction of new sustained yield managementtechniques.

2.24 Capacity Building. This sub-component would strengthen the organizational capacityof the Division of Nature Reserves in MFO for analysis and management of nationalconservation policy through: (a) preparation of a national management plan; (b) financing ofcomputers, office equipment, and related technical assistance in planning, data base management,organization management, and monitoring and evaluation; and (c) preparation of a series ofpolicy studies on key issues related to biodiversity conservation. The sub-component would alsostrengthen the Nature Resource Protection Division of Yunnan Province, which contains thelargest number of endangered species and the largest amount of protected land in China, throughpreparation of management plans and development of a geographic information system. Finally,the sub-component would support the development of a national training team, which wouldprovide about 900 person months of training at the reserve, provincial, and national levels inland use managemeni, guarding and protection, research and data management, socioeconomicsurveying and participatory planning, computer systems, and other areas.

2.25 Information System. This sub-component would support the development of newnature reserve management information systems (MIS) through: (a) preparation of biophysicaland socioeconomic baseline inventories in the five reserve areas; (b) investment in computers,software, climatic recording equipment, and other scientific and office equipment; and (c)technical assistance in database structure, data analysis and information management. The newMIS would support development of vertically and horizontally integrated databases that wouldimprove resource monitoring and decision making at the reserve, provincial, and national levels.A detailed monitoring and evaluation plan with appropriate biodiversity and social indicatorsacceptable to IDA would be developed during the first year.

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2.26 Research. This sub-component vwould strengthen the existing national researchprogram through (a) financing of research activities in the five reserve areas; and (b)establishment of a new small-scale research grants program. The grants program would be opento researchers from all reserves and based on a competitive award process, with grants notexceeding $5,000 in size.

Planting Stock Development and Nursery Management Component

2.27 This component is designed to (a) raise the quality of planting materials in Chinathrough introduction of improved genetic materials and improved nursery managementtechnologies; and (b) support the production of the 2.1 billion seedlings required in the plantationand protection forest components. It expands the Accelerated Planting Material DevelopmentProgram introduced in NAP, with emphasis on wider dissemination of improved geneticmaterials that have been tested by research institutes but not yet released for commercialafforestation. The planting stock development and nursery management program is summarizedbelow and described in detail in Annex B4.

2.28 Seeds. All project seeds will be supplied from the China General Management TreeSeed and Planting Stock Administration in MFO and its related agencies, and will be subject toextremely rigorous provenance criteria. They will be either "source selected" or "sourceidentified" according to OECD seed criteria. Seeds for Chinese fir, masson pine, larch, poplar,and some of the broadleaf species will be locally harvested from clonal seed orchards, seedstands, or areas of selected provenance for the species concerned. For Chinese fir, provenanceand progeny testing since the 1970s has permitted the establishment of several improved seedorchards, which will supply seed for about 80 percent of the project's plantings; the balance willcome from superior provenance stands already identified. Although there is a shortage ofmasson pine seed from seed orchards, MFO is confident of securing sufficient quantities fromnatural stands of superior provenances. Poplar is the species for which tree improvement inChina is most advanced and adequate numbers of very productive clones are available for theproject. The research component will support a number of measures to accelerate developmentof higher quality genetic seed and cutting material, including provenance trials, tree breedingand selection programs, improved management of stands of superior seed provenance, expansionof clonal seed and cutting orchards, controlled pollination research trials, and hybridizationtrials.

2.29 Seeds for slash pine, loblolly pine, and several eucalypts will be imported. Whilemany seed orchards have been established for southern pines, the provenance of most of theoriginal material is unrecorded, making it difficult to carry out systematic selection andbreeding. Similarly, although there has been much work in China on hybridizing eucalypt, thegenetic base of the original Chinese stands was very narrow and the quality has deteriorated oversuccessive generations. Consequently, 6,900 kg of high quality seed will be imported under theproject.

2.30 Seedlings. The total project seedling requirement will be grown in about 2,142existing nurseries operated by state forest farms, collective forest farms, or specialized

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households under contract with forest farms or county project management offices. No newnurseries would be established. Every participating county would have one central nursery andseveral smaller nurseries located near planting sites, in order to minimize transport distance andhandling of seedlings prior to planting. No large, mechanized nurseries would be used underthe project, as their cost and quality performance have generally been poor in other afforestationschemes in China. The nurseries are typically staffed with about 10-20 permanent workers andhire casual laborers as needed. While most nurseries have adequate infrastructure and workingcapital, many require new equipment and vehicles. Consequently, the project would financeprocurement of seedling transport vehicles, irrigation equipment, plastic greenhouses, andmiscellaneous tools. To simplify disbursement and accounting procedures, the project will notdirectly finance the incremental operating costs of the nurseries but will instead finance the"nursery-gate" production cost of the final seedlings. IDA has reviewed and accepted a scheduleof average unit seedling production costs for each species (see Annex CS).

2.31 Three types of seedlings will be produced: bare-root, containerized (including bothseed and clonal materials), and clonal, accounting for 81 percent, 14 percent, and 5 percent,respectively, of all plantings. Containerized seedlings include plastic poly-bags and root trainers(plastic pots with vertical ribs that cause roots to grow downward). The planting materialdevelopment program gives great emphasis to increased use of clonal production (particularlyfor Chinese fir, larch, poplar, some eucalypts, and some broadleaf species) and root trainers(particularly for containerized clonal stock, eucalypt, and harsh planting sites), since theypromote high quality seedling development and more efficient tree growth. Consequently, theproject includes specific annual production targets for these seedlings, which will be monitoredby IDA during project implementation. Bare-root seedlings, however, will continue to dominatethe planting stock, as they are ideally suited to most of the species and planting sites in theproject provinces. All seedlings will conform to detailed growth standards for each species,including collar diameter, seedling height, and root system confitguration. IDA reviewed theseedling standards at appraisal and found them acceptable.

2.32 Nursery Management. Poor nursery management practices, such as inadequate rootpruning, excessive seeding and fertilization, insufficient culling, and poor potting soil mixtures,have contributed to the problem of low quality planting stock in China. Consequently, theproject would support a restructuring of the current nursery technology based on new bedding,sowing, fertilizing, pruning, transplanting, lifting, sampling, culling, and grading techniques.MFO has prepared detailed operating guidelines for improved nursery management, which IDAreviewed at appraisal and found acceptable. The project would provide technical assistance forimplementation of thece guidelines, including short-term training programs for county nurserystaff and overseas study tours for provincial nursery staff. A new Seedling ProductionCoordination Group will be established to oversee seedling production and monitor theinplementation of the new guidelines (see para. 4.9). An assurance was obtained at negotiationsthat MFO would furnish to IDA for review by December 31 of each year an evaluation reportfor the current year and an annual work plan for the next calendar year for the planting stockdevelopment and nursery management program.

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Research and Technology Transfer Component

2.33 This component is designed to strengthen the operational focus of national researchefforts and to ensure timely transmission of research findings to the field. It is primarily acontinuation of the research and extension program initiated under NAP, which entailed asignificant restructuring of existing forestry research priorities, institutions, and work plans. Theprogram is summarized below and reviewed in detail in Annexes B5 and B6.

2.34 Research. Jnder NAP, MFO and CAF launched ten new research programsorganized around individual species or priority silviculture topics, rather than on the geographicbasis that had been used for several decades in China. This approach was designed to generateoperationally-oriented research findings that would contribute to productivity gains in thegovernment's ongoing afforestation program; hence, the trials were tied closely to extension toensure rapid transmission of research results to the field. The species programs covered Chinescfir, masson pine, poplar, larch, exotic pines, eucalypt, and broadleaf species. In addition, threeseparate research programs were developed on fertilization, wood properties, and mycorrhiza2.A new institutional structure was created to implement the improved research program and five-year research plans were prepared that were approved by IDA at negotiations. The NAPresearch program has been implemented well and has begun to generate a number of usefuloperational results, particularly in the areas of genetics and plant propagation.

2.35 The component would support the continued operation of the ten existing researchprograms and would establish one new program on protection forests. The programs will focuson planting stock improvements, including species evaluation, seed supply, plant propagationsystems, and genetic improvements; site management, including soil and site classification, landclearing systems, fertilizer prescriptions, and weed control; and stand management, includingtree spacing, thinning and pruning, permanent sample plots, and yield and growth models.Particular emphasis will be given in the early years of the project to reviewing and refining theoptimal planting density and fertilizer application rates for the main project species, in order toadjust the implementation of the plantation and protection forest components as necessary. Newfive year work plans have been prepared by MFO, which were reviewed and approved by IDAat appraisal. The component would finance (a) research services; and (b) technical assistance,including consultancy services, domestic training programs, and overseas study tours andtraining. An assurance was obtained at negotiations that MFO wouldfurnish to IDA for review:(a) an evaluation reportfor the current year and an annual work plan for the next calendar yearfor the research program by December 31 of each year; and (b) two reports analyzing the resultsof the accelerated research programs in fertilization and planting density by May 31, 1997.

2.36 Experimental Plantations. The component would support establishment of 140hectares of experimental plantations as an intermediate step in the dissemination of researchresults from small controlled research trials to large commercial timber plantations. The

2 Mycorrhiza is the symbiotic association of fungus with plant roots that is essential forsuccessful growth of many species, particularly on drought prone or low nutrient sites.

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experimental plantations would average 20-100 hectares in size and would evaluate the impactof different silvicultural treatments on tree growth. The design focus will be on plantingmaterials, stocking densities, fertilizer regimes, site preparations, and tending regimes.

2.37 Extension. The extension program is designed to establish information links amongthe eleven project research groups, provincial and county research institutes, the provincial andcounty project management offices, and the project afforestation entities. Information isdesigned to flow in both directions: researchers are expected to identify tested research resultsthat will lead to more efficient afforestation; and project staff and farmers are expected toprovide feedback on implementation experience. The institutional structure for channellinginformation back and forth is the Research and Extension Advisory Panels, which wereestablished under NAP at the national, provincial, and county levels (see para. 4.10). MFO hasprepared a detailed extension plan for the project, which was reviewed and approved by IDAat appraisal. The plan disseminates all the technical guidelines related to seedling standards,nursery management, silvicultural technology, and environmental management that have beenagreed with IDA. Key extension messages include the importance of genetic planting materials,particularly identification of superior provenances and clones and clonal propagation techniques;improvements in nursery management, particularly root cutting, containerized seedlings, andmycorrhizal association; and cost-benefits of silvicultural techniques, particularly sitepreparation, spacing, fertilization, and tending.

2.38 The component would finance (a) domestic traimng programs for project staff andafforestation entities; and (b) incremental extension operating costs, including consumables,travel and associated subsistence. To simplify disbursement and accounting procedures, theproject will not directly disburse against incremental operating costs of extension; instead, anaverage unit extension cost has been incorporated into afforestation establishment costs. Anassurance was obtained at negotiations that MFO wouldfurnish to IDA for review by December31 of each year an evaluation report for the current year and an annual work plan for the nextcalendar year for the extension program.

Institutional Capacity Building Component

2.39 This component would strengthen the capacity of both public and private sectorinstitutions in planning, management, and investment in human and forest resources. It isdesigned to support the institutional changes now underway as part of the transition to a marketeconomy. In parti lar, it would strengthen the framework for increased levels of private sectorinvestment and enh.ice public sector capacity for efficient resource management. It wouldcomprise the following five sub-components.

2.40 Human Resource Development. This sub-component would support local trainingfor 41,600 people, 180 months of overseas training for 60 persons, 53 months of overseas studytours for 105 persons, and 8 months of international consultancy services. IDA reviewed andapproved a plan for technical assistance activities during appraisal, which is summarized inAnnex B7. All of the technical assistance would be classified as Institutional Development. Keycapacity building areas include silvicultural management, nursery management, afforestation

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model design, forestry research and extension, environmental protection, natural resourceeconomic analysis, and market supply and demand analysis.

2.41 Forestry Information System. The limited availability of data on production costs,prices, and changing supply and demand conditions has impeded efficient resource allocation inthe forestry sector. To improve the collection and management of forestry data, this sub-component would support the expansion of the pilot information system introduced under NAP.The project would finance (a) desktop computers and software for provincial and county projectoffices, (b) related technical assistance and trainirg, and (c) incremental recurrent operatingcosts.

2.42 Investment Promotion. As part of the transition to a market economy, the privatesector is expected to provide an increasing amount of investment funds for afforestation andwood processing in the medium-term. However, despite some increase over the past few years,the overall level of domestic and foreign private investment remains small. Therefore, theproject would support computers, office equipment, incremental operating costs, and technicalassistance for a new investment promotion agency in one province, Fujian, to demonstrate newinstitutional arrangements to promote private sector investment in forestry.

2.43 Natural Forest Management. Another important structural change in the forestsector in the coming decade will be the continuing reduction of secondary growth natural forestsas a result of unsustainable management and excessive harvesting. In view of the economic andenvironmental importance of indigenous woodlands in China, this sub-component would supporta pilot program in one province, Jiangxi, to strengthen management of natural forests. Theproject would finance: (a) preparation of a natural forest management plan; and (b) establishmentof research trials based on new thinning, harvesting, and regeneration prescriptions.

2.44 Policy Studies. To support the government's on-going reform program in the sector,the project would finance studies of the following key policy issues: (a) restructuring options forstate-owned wood processing factories; (b) price reform options to complete the transition to amarket economy; and (c) external sector reform options to rationalize trade policy for forestproducts.

2.45 Assurances were obtained at negotiations that (a) all training and study tours wouldbe carried out in accordance with a training program acceptable to IDA; and (b) policy studieswould be carried out in accordance with terms of reference and timing acceptable to IDA, whichwould include recommendations for Jfture actions; such studies would be provided to IDA forcomment prior to completion; and thereafter, the completed studies would be revised in light ofIDA's comments and provided to the responsible government 2gencies for consideration.

D. ENvIRoNMENTAL ASPEUJs

2.46 The project would generate significant environmental benefits, including increasedforest cover, preservation of biodiversity of global significance, and reduced soil erosion,flooding and river sedimentation. However, since the project would support some activities with

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potentially adverse environmental impacts (such as earthworks in plantations, small blocks ofmonoculture, and pesticide use), it has been rated Category B. The Government carried out acomprehensive assessment of environmental impacts, mitigation measures, management issues,and monitoring requirements during project preparation. Based on this assessment and the NAPexperience with environmental protection, the Government has prepared a detailed environmentalmanagement plan (EMP) to strengthen safeguards against problems from insect and diseaseoutbreaks, soil erosion and fertility loss, fire, and ecological degradation (the EMP is availablein the project files). IDA reviewed and approved the EMP and related implementationarrangements during appraisal. An assurance was obtained during negotiations that all projectactivities would be carried out in accordance with an EMP acceptable to IDA. The mainelements of the EMP are summarized below.

2.47 Forest diversity will be maintained through the following measures. First, no largecontiguous expanse of single species plantings will be established under the project; rather, therewill be mixtures of blocks of single species, with any one block not exceeding 100 hectares insize. In plantations, these blocks will be divided by strips of natural or planted broadleaf treesfor protection purposes (e.g., firebreaks, erosion control, seed trees). In protection forests, theplanting blocks will combine a variety of trees, grasses, and bushes in one area in order to createa multi-tiered canopy, which is essential for good erosion control on steep slopes. More thanthree-quarters of the total planting area in the project involve species native to China. Second,all clonal plantations would be established with multi-clone mixtures or as block mosaics ofsingle clones and would use no less than 10 clones of any one species at the county level.Third, most project plantings would be established on land that is either barren or sparselycovered with grasses. While some plantations may involve clearing of severely degradedsecondary forests, the EMP guidelines prohibit clearing of any forest area with more than 30percent crown closure. Fourth, no plantings would be established on sites of identifiedhistorical, cultural, or ecological significance.

2.48 Soil and water conseration will be promoted through the following measures:vegetative cover will be maintained during site preparation and tending on slopes over 15degrees; stands will be planted along the contour, with staggered planting holes; the collectionof fallen leaves and branches will be forbidden; "mitre drains" will be established alongfirebreaks; and soil conservation measures such as counter-slope terraces, contour ditches, and"v-shaped" ditches will be established where severe erosion is already occurring. Fire controlwill be strengthened as follows: firebreaks will be established at 80 hectare intervals in allplantations, which primarily involve 15 meter bands of fire-resistant species such as Schimasuperba; every afforestation entity will have fire control plans, which will be integrated into thecounty level fire control system; and every afforestation entity will possess fire fightingequipment.

2.49 Integated Mest management has been practiced for many years in Chinese forestry,with heavy emphasis on biological control. Local pest and disease forecasting stations monitorpest population and infestation levels and provide timely information to afforestation entities.In addition, there is an active research program in pest control that focuses on specific insect anddisease problems in commercial tree species. Besides isolated, sporadic outbreaks of pests, there

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appears to be only one potentially serious infestation problem in areas near project planting sites:a North American mealy bug has infested about 300,000 hectares of southern pines inGuangdong Province. MFO is presently working with the U.S. Forest Service to developparasite populations to control the bug and NAP supervision missions are monitoring theirefforts.

2.50 The project includes four safeguards for pest and disease control. First, the siteselection process is designed to minimize pest control problems, as stands are less vulnerablewhen planted in optimal locations. Second, viruses and natural predators are used against certaininsect pests. For example, the Bacillus thurengiensis virus is used to control caterpillar damagein masson pine and the paper mulberry host (Broussonetia papyrifera) is used to control beetledamage in poplar. Third, chemical pesticides are used in severe outbreaks and the project isexpected to fmance $1.6 million in pesticides. All the products to be used in the project areregistered with the relevant Government authorities and have been approved for forestry use bythe National Environmental Protection Agency. Pesticides are applied mainly by hydraulicknapsack and hand-held ultra-low volume spraying, and, when the outbreak is severe, aerialspraying. Training will be provided for farm and county level personnel in safe handling anduse of pesticides. An assurance was obtained at negotiations that (a) all agrochemicals usedunder the project would be selectedfrom a list acceptable to IDA; and (b) the storage, handling,distribution, and use of such agrochemicals would be consistent with guidelines satisfactory toIDA. Fourth, a rigorous quarantine system exists for both inter-province transfer of seeds andseedlings and the importation of planting materials from abroad.

2.51 Compliance with the EMP guidelines will be monitored by project managementoffice staff, who regularly visit the field sites as part of the comprehensive inspection systemsupported under the project (see paras. 4.26-4.27). As with NAP, compliance with the agreedguidelines would be a pre-requirement for IDA reimbursement of afforestation establishmentcczts.

2.52 Environmental management will be supported by a comprehensive program oftraining and research. MFO has prepared and discussed with IDA a satisfactory trainingprogram for staff at the central, provincial, county and afforestation entity levels in the areas ofenvironmental management and monitoring, soil and water conservation, fire control, andhandling and use of pesticides. Similarly, the project supports a network of monitoring plotsthat are designed to gather data on soil and water run-off, fertilizer leaching, soil fertility, pestand disease incidence, and other environmental variables. hI plantation areas, the project willcontinue to support the 97 monitoring plots established under NAP as well as establish anadditional four plots in new project areas. In protection forest areas, three sample watershedswill be monitored. An assurance was obtained at negotiations. that MFO would furnish to IDAfor review by May 31, 1997 a report of the environmental monitoring program.

E. CoMpLIANcE wrIH BANK FoRESTRY PoLIcIES

2.53 The proposed project is consistent with the new operational policies regarding BankGroup involvement in the forestry sector. The project objectives fit into the overall Bank

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sectoral objectives to reduce deforestation, enhance the environmental contribution of forests,promote afforestation, and encourage economic development. Similarly, the project follows therecommended sectorwide approach to forestry issues, as it addresses investment requirementsin several sub-sectors and reviews general policy and institutional constraints. Finally, thepolicy framework in China satisfies the required conditions for government commitment forsustainable management and conservation-oriented forestry. In particular, the policy frameworkdelineates (a) sound management practces for existing forests; (b) the roles and rights of thegovernment, private sector, and local people in resource use and management; and (c) protectionof forest areas with high biodiversity and environmental services values. The areas of weaknessin the regulatory framework, such as restrictions on pricing and international trade, will beaddressed in studies under the project (see para. 2.44). The areas of weakness in enforcement,such as over-cutting of natural forests, will be addressed in pilot activities developed under theproposed GEF project (see paras. 2.22-2.23).

F. STATUS OF PREPARATION

2.54 The Government has prepared an extremely comprehensive feasibility study thatidentifies the objectives, targets, implementation arrangements, organizational strcture, andfinancing requirements for the project, excluding the nature reserve management componentwhich is discussed below. A list of selected project documents is given in Annex F. Allafforestation sites for the plantation and protection forest components have been identified in theproject provinces. Detailed technical plans have been prepared for about 65 percent of the totalproject area. The remaining technical plans would be completed durig the fist year of theproject. Most project nurseries have been established and are producing seedlings for the firstyear planting program. Similarly, the participating provincial governments have identified andsecured the total local counterpart fumding requirement for the project. The Ministry of Financeand MFO will jointly hold a workshop on technical and financial management of the project forprovincial staff prior to credit effectiveness. Finally, most of the project implementationstructure is already in place, since the project draws heavily on the existing leading groups andproject management offices established under NAP. However, a few new leading groups andproject management offices would need to be established in the counties and provinces that arenew to the project.

2.55 A separate feasibility study, financed under the GEF Pre-Investment Facility, hasbeen prepared for the nature reserves management component. It provides a detailed descriptionof the objectives, components, implementation arrangements, and environmental benefits of theproposed GEF project. Appraisal of the GEF project would take place following the GEFExecutive Council's approval of the project's inclusion in the GEF work program.Consideration of the first tranche of GEF operational phase projects is now expected inDecember 1994. Negotiations would quickly follow thereafter, in view of the comprehensivepreparation work already completed.

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3. PROJECT COSTS AND FINANCING

A. PRoJECr Com

3.1 The total project costs are estimated at $356.0 million, including a foreign exchangecomponent of $58.0 million or about 16.3 percent of total project costs. Afforestation costestimates are based on quantities derived from the agreed species models and average unit pricescurrently prevailing in project areas. A detailed breakdown of establishment costs per hectarefor each tree species is given in Annex Cl. Price contingencies of $26.1 million are included.Price contingencies for costs expressed in yuan are based on annual domestic escalation ratesof 9 percent for 1995, 8 percent for 1996, 7.2 percent for 1997, 6.5 percent for 1998-99, and6 percent for 2000. Price contingencies for costs expressed in US dollars are based on annualinternational escalation rates of 2.9 percent for 1995, 3 percent for 1996, 2.7 percent for 19, 7-98, and 2.5 percent for 1999-2000. Physical contingencies of $33.6 are included, based on anaverage rate of 10 percent for goods and services. Taxes and duties are not included in costs.Project costs are summarized in Table 3.1 and the detailed costs are given in Annexes C2 andC3.

Table 3.1: PROJEr CoSTs

Local Foreign Total Local Foreign Total % %- (Y million) - - ($ million) - Base Forex

Plantations 1,459.9 278.9 1,738.8 167.8 32.1 199.9 67.5 16.0Protection Forests 289.5 35.7 325.2 33.3 4.1 37.4 12.6 11.0Nature Reserves Management 70.4 26.2 96.6 12.3 4.6 16.9 5.7 27.4Planting Stock Development 245.8 56.2 302.0 28.3 6.5 34.8 11.7 18.6Research and Extension 30.8 1.0 31.8 3.5 0.1 3.6 1.2 3.2Capacity Building 10.4 21.6 32.0 1.2 2.5 3.7 1.2 67.5

Total Base Cost 2.106.8 419.6 2.526.4 246.4 49.9 296.3 100.0 16.8

Physical condngency 245.6 47.4 293.0 28.2 5.4 33.6 11.4 16.0Price contingency 495.1 65.4 560.5 23.4 2.7 26.1 8.8 10.3

Total Project Cost 2.847.5 532.4 3.380.9 298.0 58.0 356.0 120.2 16.3

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B. FINANCING

3.2 The financing plan is summarized in Table 3.2. The proposed IDA credit of SDR141. 7 million ($200 million equivalent) would cover 56 percent of total project costs, including91 percent of foreign exchange costs and 49 percent of local costs. A GET grant of $18.4million will be requested under the first tranche of GEF operational phase projects, to financethe nature reserves component. It would cover 5 percent of total project costs, including 9percenit of foreign exchange costs and 4 percent of local costs. Counterpart funding would coverthe balance of project costs. The structure of counterpart funding would vary from province toprovince. A typical financing package, excluding the nature reserves component, follows:

IDA 60%Provincial Govermment and Provincial Forestry Department 13%Prefecture/Municipality Government 2%Cou. ty Government and County Forestry Bureau 10%Beneficiaries 1S%

Total 100%

In cases where no prefecture or municipality government would be involved, the provincial andcounty governments' financing shares would be higher.

Table 3.2 PROJECr FINANCING

Local Foreign Total- ($ million) -

IDA 147.0 53.0 200.0Proposed GET Grant 13.4 5.0 18.4Provincial Govermnent 43.3 0.0 43.3Prefecture and Municipal Governments 6.7 0.0 6.7County Govermnent 33.3 0.0 33.3GET Local Counterpart Funds 4.3 0.0 4.3Beneficiaries 50.0 0.0 50.0

Total Financing 298.0 58.0 356.0

3.3 The financing from provincial and county governments would come from budgetaryrevenues; their contributions would typically account for less than one percent of their totalannual budgetary allocations. Afforestation entities, county forestry bureaus, and provincialforestry departments would obtain part of their counterpart contributions from accumulated

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proceeds of their reforestation and reinvestment funds. These have been generated by specialfees paid by farmers and state forest farms on timber sales that are designated for future forestrydevelopment purposes. Combined, these fees represent a total of 18 percent of gross salesrevenues. A portion of the fees are paid into special accounts held by provincial and countygovernments, which will use these funds as part of their counterpart contribution in the project.The remaining share of these fees is retained in a type of escrow account in the name of thepaying afforestation entity, which will use these funds as part of its counterpart contribution inthe project. The balance of the beneficiaries' contribution will be in the form of cash or labor.

C. PROCUREMENT

3.4 The procurement arrangements are summarized in Table 3.3 and reviewed in detailin Annex C4. Civil works worth $272.3 million would be required in the project, which amountto 76 percent of total project costs and comprise labor costs ($220.2 million), seedlings ($35.7million), survey and design work ($5.0 million), and shed construction ($11.4 million) forafforestation establishment. These works are small, widely scattered, and scheduled accordingto the time of year and availability of seedlings. This work, which would not be suitable forcompetitive contract bidding, will be carried out by casual labor paid on a piece-work basis andmanaged and supervised by the staff of the afforestation entity. Each forest farm will recruitworkers individually from the local area and pay them according to prevailing local wage rates.Most farms have already done this for several years and there are established local labor marketsfor this seasonal work. A few of the larger farms may also carry out some of the work on forceaccount. IDA reviewed these labor procedures at appraisal and found them acceptable.

3.5 Goods worth $44.9 million would be required for the project, comprising seeds($0.6 million), fertilizer ($29.0 million), pesticides ($1.7 million), vehicles ($10.9 million), andoffice and nursery equipment ($2.7 million). ICB procurement procedures would apply tofertilizers (except calcium magnesium phosphate and calcium super phosphate), pesticides,vehicles (except tractors), photocopying machines, and computers and software, for a total of$37.4 million or 83 percent of all goods. A margin of preference equal to 15 percent of thec.i.f. price of imported goods or the actual customs duties and import taxes, whichever is less,will be allowed to domestic manufacturrs bidding under ICB procedures. Contracts would begrouped into packages of US$250,000 or more. LCB procurement procedures acceptable toIDA would apply to calcium magnesium phosphate fertilizer, calcium super phosphate fertilizer,tractors, and irrigation sprinklers, for a total amount of $3.9 million. Previous projectexperience has shown that these items are available locally at prices significantly below thoseof the international market. Foreign bidders would therefore not be interested in bidding forthem, although they would be allowed to participate in the bidding process if desired. Shoppingprocurement procedures would apply to office equipment (except photocopying machines) andmiscellaneous nursery materials and equipment (except irrigation spriniders), under contracts notexceeding $75,000 and $1.1 million in aggregate, since small quantities of diverse equipmentare required. Contracts would be awarded on the basis of comparisons of price quotationssolicited from at least three qualified suppliers, as described in Bank guidelines. Directprocurement procedures would apply to seeds, since their genetic suitability is the only criterion

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for choice, for a total amount of $0.6 million. Organic manure and fertilizer distribution costswould be locally funded, for a total amount of $1.9 million.

3.6 Services worth $16.1 million would be required for the project, comprising trainingand technical assistance ($2.7 million), research services ($1.5 million), and indirect costsrelated to extension, information management, and supervision services ($11.9 million).Consultants would be employed in accordance with Bank Group Guidelines for the Use ofConsultants. Local training, overseas training, study tours, research services, and indirectoperating services would be procured by procedures acceptable to IDA.

Table 3.3: PRocuREmENT PROF1LE($ million)'

Procurement MethodICB LCB Other2 NBFI Total

Afforestation Establishment 272.3 272.3(149.8) (149.8)

Seeds 0.6 0.6(0.6) (0.6)

Fertilizer 24.8 2.3 1.9 29.0(24.8) (2.3) (0.0) (27.1)

Pesticides 1.7 1.7(1.7) (1.7)

Vehicles 9.7 1.2 10.9(9.7) (1.2) (10.9)

Office and Nursery Equipment 1.2 0.4 1.1 2.7(1.2) (0.4) (1.1) (2.7)

Indirect Costs4 8.5 3.4 11.9(4.7) (0.0) (4.7)

Research Services 0.5 1.0 1.5(0.5) (0.0) (0.5)

Training and Technical Assistance 2.0 0.7 2.7(2.0) (0.0) (2.0)

Proposed GEF Project5 22.7 22.7(0.0) (0.0)

Total 37.4 3.9 285.1 29.7 356.0(37.4) (3.9) (158.7) (0.0) (200.0)

' Figures in parentheses represent the amounts financed by the IDA credit, including contingencies.2 Other procurement methods include direct recruitment of labor, force account, local and international

shopping, and direct purchase.3 NBF: Not Bank-financed.4 Includes costs related to extension, supervision, and information management.S Procurement under the GET grant would be in accordance with Bank Group guidelines. Detailed

procurement arrangements will be reviewed and agreed during the appraisal of the GEF project.

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3.7 IDA Review. All contracts for goods would be grouped into bid packages wheneverpossible to attract competition and permit bulk purchasing. Standard bidding documentsapproved by IDA would be used. All contracts for goods in excess of $250,000 would besubject to prior review by IDA, which would cover about 50 percent of the total goods by value.All contracts for consultants' services in excess of $100,000 for engagement of firms and$50,000 for engagement of individuals would be subject to prior review by IDA, which wouldcover about 25 percent of the total consultants' services by value. Other contracts for goods andservices, including all research services, would be subject to ex-post review by IDA supervisionmissions. Further details on the tining of procurement activities are given in Chart 1. ICBprocurement will be handled by a central procurement section in the project management officein MFO, which will engage the China National Machinery Import and Export Corporation asits procurement agent.

D. DISBuRSEMENT

3.8 Funds from the credit would be disbursed on the following basis:

(a) Goods (fertilizers, imported seeds, pesticides, vehicles, office equipment,nursery equipment, tools and spare parts) ($43.0 million): 100% of foreignexpenditures, 100% of local expenditures (ex-factory cost), and 75% of localexpenaitures for other items procured locally;

(b) Afforestation Establishment (labor, seedlings, indirect costs, guard/storagesheds) ($154.5 million): 55%;

(c) Consultants' Services, Training, and Study Tours ($2.0 million): 100%; and

(d) Research Services ($0.5 million): 100%.

Disbursements for afforestation establishment costs would cover: (a) all labor requirements forsite preparation, conservation works, planting, and tending; (b) seedlings; (c) guard/storagesheds; and (d) indirect costs related to survey and design, extension, information management,environmental management, and supervision. All of the indirect costs, except survey anddesign, support the initial training and supervision requirements related to the transfer of newtechnologies and management systems in the early years of the project. Disbursements forafforestation establishment would be made against an agreed schedule of unit costs per hectarefor each species. The schedule for the first year of the project, excluding guard/storage sheds,is given in Annex C5; thereafter it would be revised yearly on the basis of actual cost experiencerecorded in audited statements of expenditure and monitored by supervision missions.Disbursements for afforestation establishment woisld be made after county project managementoffices have inspected afforestation sites and certified that all work complied with the technicaland environmental guidelines agreed with IDA (see para. 4.27). Disbursements forguard/storage sheds would be based on the agreed unit cost of yuan 360 per square meter in thefirst year and modified as necessary thereF er.

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3.9 Disbursements would be made against statements of expenditure (SOEs) forexpenditures relating to (a) afforestation establishment, (b) training and study tours, (c) contractsfor goods not exceeding $250,000 equivalent, and (d) contract for research services andindividual consultants not exceeding $50,000 equivalent and for consultants' services with firmsnot exceeding $100,000 equivalent. The supporting dij2uments for SOEs would be retained bythe provincial project management offices and the central project management office in MFOcould retrieve them as required for IDA supervision missions. In the case of contracts for goodsand services above these thresholds, disbursements would be made against the full documentationwith the contracts themselves and other supporting documents.

3.10 In order to disburse the credit proceeds efficiently, a special account would beopened by the Ministry of Finance in US dollars in a bank acceptable to IDA with an initialdeposit of $13 million, equivalent to the credit's financing of average expenditures for fourmonths during the first three years of the project. Applications for replenishment of .his accountwill be submieited monthly, or whenever the account is drawn down by 50 percent, whichevercomes first. Retroactive financing of up to $11 million would be provided against expendituresmade between September 1, 1993 and the date of signing of the Development Credit Agreement,for survey and design work, seeds, seedlings, fertilizer, and site preparation for the first yearof planting.

3.11 The project is expected to be completed by December 31, 2000 and the closing datewould be December 31, 2001. The estimated schedule of disbursement is given in Annex C6.Over 80 percent of all disbursements will be made during the first four years, while theplantations and forests are being established; relatively small amounts will be disbursed fortending activities, research and technical assistance during the final two years. The projectdisbursement schedule is consistent with the general disbursement profile for forestry investmentloans in China.

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4. PROJECT ORGANIZATION AND MANAGEMENT

A. OVERALL PRoJECr MANAGEMENT

4.1 The project would be implemented by MFO, the 17 provincial forestry departments,258 county forestry bureaus, and 5 nature reserves. Most of the project management structureis already operational, as it draws h eavily on ihe existing NAP structure for plantationmanagemenit, the existing YRPFP structure for protection forest management, and the existingDepartment of Forest Protection structure for nature reserve management. As with mostprojects in China, leading groups would be responsible for policy and strategic managementissues at each level, and project management offices would be responsible for detailed planning,management, and supervision of project activities. Detailed implementation arrangements at thenational, provincial, and county levels are reviewed below and summarinzed in Chart 2.

4.2 National Level. The national leading group is chaired by the Minister of Forestryand consists of two vice-ministers, the director of the central Project Management Center(PMC), and the directors of relevant departments from MFO; the directors of CAF, Academyof Forest Inventory and Planning, and the China General Management Tree Seed and PlantingStock Administration. This group sets the principles and policies for the afforestation program,approves the project's overall implementation plan, and coordinates inter-ministerial discussionswith the State Planning Commission, Ministry of Finance (MOF), and State AuditAdministration.

4.3 The central PMC in MFO has overall responsibility for project design, executionand monitoring. The PMC, which currently manages NAP, is headed by a director who reportsdirectly to the minister and comprises 25 staff in the areas of silviculture, environmentalmanagement, economics, procurement, accounting and finance, and information managementAlthough the PMC was set up under NAP as a separate department within MFO, it has workedclosely and liaised effectively with the other related technical departments. The PMC establishestechnical standards for the project, approves provincial work and financing plans, supervisesprovincial compliance with project inspection and reporting requirements, manages projectaccounting and information systems, trains provincial level staff, and monitors projectperformance. In addition, the PMC is responsible for managing a variety of centralizedadministrative services, including international procurement, selection of consultants,arrangements for overseas training and study tours, execution of policy studies, review of IDAcredit proceeds withdrawal applications, and general liaison with IDA.

4.4 Provincial Level. The provincial leading groups are chaired by the vice-governorresponsible for forestry and consist of representatives from the forestry, finance, planning, andaudit departments. They detemine provincial policies, approve the provincial work plans, and

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mobilize provincial counterpart funds. The provincial project management offices (PMOs)would all be located in forestry departments; they would simply subsume the existing NAPoffices in the fourteen provinces that participated in the earlier project and would be establishedin the three new provinces (Heilongjiang, Shanxi, and Shaanxi). They would be responsible forthe following activities: approving the design of all afforestation plans; supervisingimplementation of all work; ensuring timely commitment and provision of counterpart funds;adapting the national environmental protection guidelines to specific provincial conditions; andconducting project-related staff training programs.

4.5 MOF and MFG would jointly prepare Project Implementation Rules (PIR)delineating the respective roles of the finance and forestry agencies at the national and provinciallevels in the technical and financial management of the project. The PIR would specify thestandards and conditions under which the provinces agree to carry out the project. MOF andMFO would jointly issue the PIR to the project provinces, along with the specific terms andconditions for on-lending the proceeds of the IDA credit, under cover of a document that wouldalso include an acceptance letter to be signed by each province. The acceptance letter would bespecific for each province and would include the amount on-lent, the project components, andan agreement to abide by the PIR in project implementation and to abide by the on-lending termsset out in the Development Credit Agreement.

4.6 CountW Level. The county leading groups are chaired by the mayor and consist ofrepresentatives from the forestry, finance, planning, and audit bureaus. They determine countypolicies, approve individual site plans, ana mobilize county counterpart funds. County PMOsplay a key role in the project management structure, as they work directly with afforestationentities to design afforestation schemes, supervise and inspect all work, ensure adherence withthe agreed technical and environmental standards of the project, and initiate disbursement ofproject funds. All PMOs would be established in the forestry bureaus. In counties withplantation activities, PMOs either would subsume existng NAP offices, if the countiesparticipated in the previous project, or would be newly created. In counties with protectionforest activities, PMOs would be located in the existing county offices of YRPFP, which havesuccessflully coordinated the inputs of the three different bureaus involved in the design, funding,and implementation of protection forest activities (forestry, agriculture, and water resources).In counties with nature reserve management activities, the PMOs would be located at the naturereserves.

4.7 The provincial governments will sign a project implementation agreement with thecounty authorities, who would in turn sign a comparable document with the township authoritiesor afforestation entities, identifying the respective responsibilities in project implementation.

4.8 An assurance was obtained at negotiations that all PMOs at the national, provincial,and county levels would be established and maintained in forestry agencies, with staffing,functions, and responsibilities acceptable to IDA. In addition, issuance of PIR acceptable toIDA, and provision of written acceptances of the PIR and on-lending terms and conditions fromaU the project provinces (except Shaanxi, which is only partcipating in GEFfinanced activities)would be a condition of effectiveness.

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B. MANAGEMENT OF TECHNICAL ACrffwES

4.9 Seedling Production. A new Seedling Production Coordination Group (SPCG) willbe established at the national and provincial levels to supervise production and distribution ofplanting materials in the project. The national SPCG will comprise technical experts from theChina General Management Tree Seed and Planting Stock Administration, CAF, the Academyof Forest Inventory and Planning, the Afforestation Department of MFO, and the PMC. It willdevelop seedling criteria and nursery management guidelines, prepare an annual plan for seedlingproduction, monitor compliance with technical standards, coordinate nursery research issues, andprepare training programs. The provincial SPCG will comprise staff from the correspondinglower levels of government. It will supervise the production and distribution of plantingmaterials in each project nursery, implement research trials, and conduct training programs.IDA reviewed the staffmg and terms of reference for the SPCG at appraisal and found themacceptable.

4.10 Research and Extension. The research and extension component would beimplemented through the organizational structure successfully developed under NAP, as follows.First, Research and Extension Support Panels (RESPs) would continue to operate at the natic .al,provincial, and county levels, under the supervision of the project management offices. TheRESPs are responsible for identifying research and extension priorities, supervisingimplementation, providing technical advice as required, and determining training requirementsand programs. Scientists from CAF will serve on the national RESP and scientists fromprovincial research institutes on provincial RESPs, primarily in the areas of improved plantingmaterials, silvicultural technology, forest pests and diseases, soil and water conservation, andinformation management. New RESPs would be established in the provinces and counties thatdid not participate in NAP. Second, the actual research work would continue to be managedby eleven Central Research Groups (CRGs) organized under the national RESP. Eacb CRGcompnses around a dozen experts from CAF, provincial forestry research institutes, and forestryuniversities. Each CRG is located in a central place, such as a provincial forestry researchinstitute, with good access to field research sites and adequate scientific facilities. The CRGsare responsible for designing and implementng research trials and identifying domestic andforeign specialists as required. Third, the actual extension work would be managed by extensionagents in the PMOs at each level. IDA reviewed the staffing and terms of reference for theRESPs and CRGs at appraisal and found them acceptable.

4.11 Nature Reserve Management. The Division of Nature Reserves (DNR) in theDepartment of Forest Protection in MFO will be responsible for technical management of thenature reserve component at the national level. DNR currently has only four full-time staffpersons and, consequently, the project will strengthen DNR management capacity throughprovision of four additional staff positions and one resident advisor. The provincial PMOs willbe responsible for technical management at the local level for the first two years of the project.Thereafter, management responsibilities would be devolved to the nature reserves themselves,with the exception that tie Shaanxi PMO would continue to manage project activities since fourdifferent sub-reserves are involved.

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4.12 Environmental Management. The Environmental Protection Groups (EPGs)established at the national and provincial levels under NAP would continue to be responsible forenvironmental management issues in the project. EPGs would be created in the new provinces.The national EPG comprises representatives from the PMC, Forest Protection Department andEnvironmental Protection Office in MFO, CAF, and the Academy of Forest Inventoty andPlanning. It has overall responsibility for developing and refining the environmentalmanagement plan (EMP), monitoring adherence to the EMP guidelines, and preparing trainingprograms. The provincial EPGs are responsible for adapting the national guidelines to localconditions, supervising implementation of the guidelines by afforestation entities, and developingmonitoring plots. IDA reviewed the staffmg and terms of reference for the EPGs at appraisaland found them acceptable.

C. AFFORESTATION ENTrTEs

4.13 The main afforestation entities in the project are collective forest farms, share-holding forest farms, state forest farms, and individual households. In line with the Bank GroupCountry Assistance Strategy, the selection of afforestation entities has emphasized non-stateproduction units, particularly those organized on a share-holding basis. In fact, the share ofstate production in Bank-fnanced forestry projects has declined dramatically over the pastdecade, from 100 percent in the Forestry Development Project to 25 percent in NAP to less than10 percent in this project. Less than 25 percent of the counties and none of the afforestationentites that participated in NAP would be involved in this project, in order to promotemaximum transfer of new silvicultural technologies in China.

4.14 Collective Forest Farms (CFFs) will account for 448,200 hectares of afforestationin the project, 50 percent of the total planting area. This land is collectively owned by thecommunity, which assign land use rights to a forest farm enterprise that invests in afforestationon behalf of the community. There are two ownership/management structures. Typically, theCFF will sign a long-term "labor contract" with individual farmers to establish and manage aspecific piece of forest land. Under this arrangement, the CFF will pay the household for itslabor and provide aU the inputs, but will retain all the equity in the investment and,consequently, all revenues from thinning and harvesting. However, in cases where the CFF isshort of suitable land for afforestation, it may acquire additional land from individuals inexchange for a share of the revenues from thiDnning and harvesting. Under this "share-holdingcontract," the CFF pays labor, provides inputs, and provides a small return to the farmer forthe land investment. Under both arrangements, the CFF is responsible for all managementdecisions and the use and repayment of all project funds.

4.15 Share-Holding Forest Farms (SHEs) will account for 323,100 hectares ofafforestation, 36 percent of the total planting area. There are two ownership/managementstructures in this new, innovative land-use arrangement. First, as noted above, individualhouseholds will assign land to a CFF or a state forest farm. However, there are three importantdifferences in this case: (a) the parties form a new legal entity, a share-holding company, thatis liable for the use and repayment of project funds; (b) the farmers typically provide their laboras an unpaid, equity contribution to the project; and (c) the parties are jointly responsible for

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management. The farmers receive a much larger share of the revenues in this case, as a resultof their contribution of labor and assumption of repayment risk. Second, in a few cases,individual households with surplus labor, land, and capital will pool their resources and forma share-holding company for afforestation. They are responsible for all technical and financialmanagement in the project.

4.16 State Forest Farms (SFFs) will account for 81,900 hectares of afforestation, 9percent of the total planting area. There are two different arrangements. If the SFF has notfully developed all existing forest land, it will use the project funds to expand afforestation onits own land. However, if all forest land has been developed, the SFF will acquire additionalland from individual households or CFFs in exchange for a share of the revenues from thinningand harvesting. Under this "share-holding contract, " the SFF pays labor, provides inputs, andprovides a small return for the land investment.

4.17 Individual Households will account for 46,800 hectares of afforestation, 5 percentof the total planting area. They are completely responsible for the provision of inputs, technicalmanagement, and the use and repayment of project funds.

D. FiNANCIAL MANAGEMENT

4.18 IDA Credit. The proposed IDA credit would be on-lent from MOF to the provincialfmance departments as follows. The portion of the credit for plantation establishment andrelated activities would be on-lent with a 4.5 percent interest rate, eight-year grace period onprincipal repayments, and twenty-year maturity period. The portion of the credit for protectionforest establishment and related activities would be on-lent with a 2.5 percent interest rate, ten-year grace period on principal repayments, and twenty-five year maturity period. This leads toa weighted average interest rate of 4.2 percent for the whole credit. The loan would bedenominated in Special Drawing Rights (SDR) and payable in U.S. dollars, and the provincialgovernments would assume all foreign exchange risk between the SDR and renminbi during theperiod of their debt service. An assurance was obtained at negotiations with respect to theseon-lending terms and conditions to the provinces. The PMC in MFO would manage the portionof the IDA credit used for international procurement, consultancy services, overseas training andstudy tours, research operating costs, and policy studies, although the provinces would assumethe debt service responsibility for these activities. The general on-lending conditions would bespelled out in the document transmitting the Project Implementation Rules to the participatingprovinces (see para. 4.5); detailed on-lending arrangements would be contained in separate on-lending agreements signed between MOF and the participating provinces.

4.19 The provincial finance departments would on-lend the IDA credit to the countyfinance bureaus (or, in some cases, to prefecture/municipality finance bureaus) on the sameterms and conditions as received from MOF. However, an additional interest rate spread notto exceed 2.0 percent may be added to any part of the IDA credit that is on-lent in localcurrency, since it will be necessary for the provincial government to build up a reserve for theforeign exchange risk. The proportion of the credit on-lent in local currency will varysignificantly across the provinces, in line with the different foreign exchange risk capacities at

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the provincial, prefecture/municipal, county and afforestation entity levels. However, very littleof the foreign exchange risk would be passed on to the final project beneficiaries, who earn alltheir income in local currency and have no capacity to hedge against exchange rate movement.This intermediate on-lending would be governed by on-lending agreements signed by the financeagencies at both levels.

4.20 The county finance bureau (or prefecture/municipality finance bureau) would on-lendthe IDA credit to the afforestation entities on the same terms and conditions as received fromthe provincial government. Again, an additional interest rate spread not to exceed 2.0 percentmay be added for any funds received in foreign exchange but on-lent in local currency. Thisfinal on-lending would be governed by on-lending agreements signed by the finance agencies atthe county level and the afforestation entity. The final on-lending rate to project farmers wouldnot exceed 6.5 percent for plantation activities and 4.5 percent for protection forest activities.An assurance was obtained at negotiations with respect to these on-lending interest rates, graceperiods, and matuity periods for the final project beneficiaries.

4.21 Counterpart Funds. The provincial governments would be responsible foridentifying and raising local counterpart funds. All counterpart funds provided by ihe provincialand county governments would be in the form of loans. The final on-lending terms toafforestation entities would be as follows: the grace period and maturity period would be thesame as the IDA credit and the interest rate would not exceed the corresponding rates for IDAfunds on-lent in local currency. These funds would be on-lent to the afforestation entities onterms and conditions set out in the PIR.

4.22 Project Accounts. The Bank of China (BOC) and its branches will serve as theproject's channel for disbursing and collecting all project loan funds. Each provincial andcounty finance office will open a project account at the local BOC branch, which will maintainsub-accounts for the different loan sources (IDA credit, provincial government loans, countyforestry bureau loans, etc.). BOC will assume no risk under the project and will not charge anyspecial fees related to disbursement and collection.

4.23 Reimbursement Procedures. Both finance and forestry staff at every level wouldbe involved in reviewing the reimbursement applications from afforestation entities for workfinanced under the IDA credit and counterpart funds, in order to ensure sound financial andtechnical management of project activities. The procedures would be as follows.Reimbursement documentation would be prepared by the county PMO, with the countersignatreof the county finance bureau, and sent to the provincial PMO; the documentation would bereviewed and approved by the provincial PMO, with the countersignature of the provincialfinance department, and sent simultaneously to MOF and MFO; MFO would have a seven-daytimer period to review the application and raise an objection if the application is not consistentwith the technical guidelines of the project; if MOF does not hear back from MFO within thetime period, it would automatically process the application; if MFO raises an objection withinthe time period, MOF would not process the application until the MFO objection is resolved.In order to expedite these procedures, many provincial and county governments have agreed toappoint finance staff as deputy directors of the PMOs.

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4.24 Accounts and Audit. The afforestation entities, the county and provincial PMOs,the World Bank Department in MOF, and the relevant branches of BOC would each maintainseparate accounts for project funds. The provincial audited accounts would be submitted to theWorld Bank Department in MOF, with copies to the PMC, within four months of the end of thefinancial year. MOF would submit to IDA within six months of the end of the financial yeara consolidated audit report by the State Audit Administration (or another independent auditoracceptable to IDA) containing a summary of the findings of the provincial audit reports and areport on the accounts maintained by MOF. The audited accounts would include details ofwithdrawals from the Credit Account made on the basis of Statements of Expenditure, and theauditor's opinion about whether these withdrawals were against expenditures eligible forreimbursement by IDA. The following assurances were obtained at negotiations: (a) theBorrower would maintain consolidated accounts for all components for annual auditing byindependent auditors acceptable to IDA; and (b) the consolidated project accounts together withthe auditor's report would be submitted to IDA within six months of the close of each financialyear.

4.25 Recover of Project Investments. The afforestation entities would be responsiblefor full repayment of the IDA credit and local counterpart loans. They will repay the debt,according to the terms and conditions set out in the provincial acceptance letters of the PIR, tothe county finance bureaus, which will repay up the line to MOF. All the beneficiaries havenon-project sources of income to cover debt service requirements, since they will be liable forfull recovery of project loans in most cases prior to final harvest. In addition to these directfinance charges, the afforestation entities have to pay the reforestation and reinvestment feesdescribed in para. 3.3, and a variety of product taxes a' ounting to 18 percent of gross salesrevenues.

E. MONIoRING, EVALtTATioN AND REPORTING

4.26 The national, provincial, and county PMOs would monitor the project's progressand evaluate the overall impact of the project and the economic and financial benefits of eachcomponent. Project monitoring would be based on the existing information system in MFO,which performed well under NAP. The primary objectives are: (a) measure the growth andquality of the stands over the rotation period, in order to determine if any adjustments to thesilvicultural prescriptions are required; (b) measure environmental parameters such as soil andwater run-off, in order to assess environmental impacts and mitigate any adverse impacts; (c)review capital and recurrent operating costs, in order to optimze cost-benefit relationships andensure adequate returns to project beneficiaries; and (d) monitor changing market prices andconditions, in order to determine the optimal harvesting tme and product size.

4.27 Project data would be collected through several different inspection visits of plantingareas. Sites would be inspected at the time of planting and again six months later to gatherinformation on mortality, plant health and height, and environmental management. A thirdinspecdon would follow in the second to fourth year, after weeding is finished and the canopyhas closed. Later inspections would be necessary prior to each thinning to ensure that the post-thinning stocking density and basal area will optimize the future development of the stand. A

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final inspection would be carried out three to five years before harvesting to confirm that thestand is meeting the production targets and changing market conditions. Inspections will alsobe carried out in the nurseries to ensure satisfactory seedling quality and nursery management.

4.28 The inspection program would be carried out by county PMO staff, who wouldrecord and transmit the information to the provincial PMCs. Provincial offices would beequipped with small computers to enable them to collect and summarize the data for transmissionto the central PMC. The PMC would have ultimate responsibility for monitoring and analyzmgthe physical and financial progress of the project and for recommending any adjustments to thedesign of the project during implementation. MFO will prepare and furnish to IDA semi-annualprogress reports in March and September of each year. An assurance was obtained atnegotiations that MFO and the provinces would undertake with IDA a midterm review of theprogress of and prospects for implementation by September 30, 1997. The project completionreport containing the fmal assessment of the project would be submitted to IDA no later than sixmonths following the closing date. A list of key monitoring indicators, a table for monitoringafforestation establishment costs, and a plan for IDA supervision are given in Annexes DI, D2,and D3.

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5. PRODUCTION, TS AND PRICES

A. PRODUCrION

5.1 The yield levels for species grown in the plantation component are summarizedbelow and presented in detail in Annex El. Species that are grown for constuction timber(Chinese fir and slash pine) will typically be thinned twice, around years 10 and 14, prior tofinal harvest; poplar and Schima superba, however, are not thinned since the former is plantedinitially with wide spacing and the latter serves as firebreaks. The wood extracted duringthinnings tends to be small in size and used primarily for building poles and fuelwood. Thevolume produced ranges from 3.5 m3/hectare for slash pine to 8.9 m3/hectare for Chinese firdurng the first thinning, and about 20 m3/hectare for all species during the second thinning.The total production volume at the time of final harvest varies greatly by species, site quality,and management program. For example, Chinese fir grox n for small-diameter timber on lowquality sites in 20-year rotations will produce 143.1 m3/hectare, while the same species grownfor large-diameter timber on high quality sites in 30-year rotations wil produce 379.8m 3/hectare. About 90 percent of the final harvest constitutes standard timber, vith the balanceconsisting of bark, branches, and unusable wood that is consumed as fuelwood. The total timberyield is further disaggregated into large dimension logs (above 20 cm in diameter), mediumdimension logs (around 12-20 cm in diameter), small dimension logs (around 8-12 cm), and culltimber (below 8 cm in diameter).

5.2 Species that are grown for pit props (masson pine, slash pine, loblolly pine, andlarch) wiUl also be thinned twice, around years 10 and 14, prior to final harvest around year 20.The production volumes average 4 m3/hectare during the first thinning and 10 m3/hectare duringthe second thinning. Again, the total production amounts at final harvest wiUl vary widely,ranging from 131.3 m3/hectare for larch to 183.0 m3/hectare for loblolly pine. Black locust,however, is grown in shorter rotations and is therefore only thiimed once; it produces 64.0m3/hectare at final harvest. Species that are grown for pulpwood (masson pine, slash pine, andlarch) wiUl generally be thinned once, in year 10, with an average volume of 4 m3/hectare.Again, the total production amounts at final harvest in year 18 will vary widely, ranging from99.5 m3/hectare for larch to 141.6 m3/hectare for slash pine. Eucalypt and poplar, however, aregrown in shorter rotations and are therefore not thinned; the former produces 77 m3/hectare ina 7-year rotation and the latter 93.7 in3/hectare in a 10-year rotation. Bamboo grown forpulpwood will annually produce 4.2 tons/hectare in years 7-10, 5.7 tons/hectare in years 11-14,and 8.5 tons/hectare in years 15-20.

5.3 As reviewed in pam. 2.17, protection forests will be managed to optimizeenvironmental benefits not production quantities. Nonetheless, they will produce a significantvolume of wood products, as summarized below and presented in detail in Annex El. Species

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that are grown for timber (masson pine, Chinese fir, sawtooth oak, cypress, and alder) will bethinned twice, in years 13 and 19, which will primarily produce building poles and fuelwood.A portion of the growing stock will be harvested in year 25 and every five years thereafter topromote regeneration of the forest, which will produce small but marketable surpluses of timber.For example, during the first regeneration cutting in year 25, total production will range from20.5 m3/hectare for sawtooth oak to 41.8 m3/hectare for Chinese fir. The other species willproduce a variety of forest products: Chinese chestnut is expected to produce an annual yield perhectare of 0.6 tons in years 4-9, 2.5 tons in years 10-20, and 2.0 tons in years 21-25; Pear isexpected to produce an annual yield per hectare of 4 tons in years 3-6, 12 tons in years 7-17,and 8 tons in years 18-25; Eucommia will produce 67 kg/hectare of bark during the first peelingin year 8, 160 kg/hectare during the second peeling in year 16, and 373 kg/hectare during thefinal peeling in year 20; and Chinese sumac will produce an annual yield per hectare of 90 kgof gallnut (a raw material in acid for the tanning industry) in years 5-7, 165 kg in years 8-17,and 135 kg in years 18-25. The hill closure treatment program will not produce any marketablesurpluses of timber, although a small amount of fuelwood will be produced.

5.4 In order to estimate total project production, the amount of wood of each size classfrom both final harvest and thinnings as well as the total production of miscellaneous forestproducts has been estimated for each species. Over a 33-year period, the project would produceabout 114 million m3 of timber, 10.8 million tons of fuelwood, 5.2 million tons of bamboowood, 0.7 million tons of bamboo shoots, 0.3 million tons of resin, and 1.5 million tons of fruitand nuts. The total volume of project production by species is shown in Annex E2.

B. MARKS

5.5 As reviewed in paras. 1.7-1.10, supply and demand for timber products is currentlynot in equilibrium in China: consumption significantly exceeds sustainable yields and, as aresult, mature forests are being over-harvested at the rate of 500,000 hectares per year. Thelarge consumption of timber primarily reflects three factors: the huge growth in rural and urbanconstruction over the past decade, the increased demand for paper products as a result of risingincomes, and the steady demand for wood products by the mining and railway sectors. Therecent Country Economic Memorandum (No. 11932-CHA) projects continued strong growth inthe economy over the next decade, which will lead to increased demand for timber, pulpwood,and other forest products. Gross domestic production is expected to grow by 8.9 percent peryear in 1992-2000, fueled by an average annual increase in gross domestic investment of 7.3percent. Consequently, the market prospects for project production are extremely favorable andthere is virtually no risk that aggregate demand conditions will change significantly over the lifeof the project.

5.6 Every province completed two analytical exercises to ensure that the species, end-uses, and sites proposed for the plantation component would be consistent with specific localmarket conditions. First, a comprehensive market survey was prepared as part of projectpreparation based on terms of reference supplied by IDA. The market surveys reviewed exisdngforest resources (including forest areas, growing stock, and growth rates), trade (both inter-provincial and international), consumption (disaggregated by construction timber, pit props,

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pulpwood, plywood, fiberboard, particleboard, furniture, and other uses), industrial processingcapacity (including installed capacity and current utili7ation rates), prices (including raw materialand final product), and marketing infrastructure. Based on this information, the provinces thenprepared supply and demand projections for 2000 and 2010 to identify which end-products andspecies should be grown under the project. IDA reviewed a sample of these studies and foundthem acceptable. Second, the provinces reviewed the prevailing roadside timber prices at allplanting sites proposed for the project to ensure that every site would achieve a minimumfinancial rate of return of 12 percent. As a result, all project sites are located in areas of strongdemand close to specific end-use markets, such as sawn timber mills, pulpwood factories, andretail log markets.

B. PRICES

5.7 Prices. All project output would be sold in the free market, subject to no pricecontrols or marketing restrictions. Timber prices have increased dramatically over the past fewyears as a result of the phased elimination of fLxed and "guidance" prices and othermacroeconomic reforms. For example, between 1990 and 1993, the average roadside priceincreased by 60 percent for masson pine, 40 percent for slash pine, and 35 percent for Chinesefir. However, a few species have showed a decline in real terms as a result of changing marketconditions, such as Italian poplar (which has been replaced by Chinese white poplar as thepreferred building material in rural areas in northern China) and paulownia (which has beenflooding local timber markets and creating downward pressure on prices). As a result, these twospecies, which were supported under NAP, were not included in this project.

5.8 Domestic prices for small and medium diameter timber are generally in line withborder price equivalents. However, the local prices for large diameter timber are about 10percent lower and pulpwood are about 5 percent higher than corresponding import prices (seeAnnex E3). This reflects the impact of the remaining price and trade restrictions in the economy(see paras. 1.8 and 1.16). As long as the Government maintains its current macroeconomicreform program, it is extremely unlikely that supply and demand conditions would lead to anysignificant change in prices from present levels. Policy slippage in pricing is unlikely, as anattempt to reintroduce timber price controls in 1988 met with widespread resistance and wasquickly abandoned. All inputs used in the project, such as fertilizer, seedlings, andagrochemicals, would be sold at free market prices.

5.9 The input and output prices used in the project financial and economic analysis arepresented in Annex E4. The financial prices of fertilizers and pesticides are based on actualimport prices from recent NAP procurement. The financial price of labor is a weighted averageof the various daily wage rates currently prevailing in project areas, which amounts to 9.5 yuanfor protection forest establishment, 10.5 yuan for plantation establishment other than eucalypt,and 11.5 yuan for eucalypt establishment. The fimancial output prices are weighted averages foreach major species and size class based on field surveys of actual prices by MFO staff. Theyare roadside prices and incorporate the costs of logging and skidding. For economic analysis,the farmgate values of fertilizers were calculated on the basis of World Bank commodity priceprojections, with adjustment for transport and handling costs. The economic values of other

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inputs were considered equivalent to the fimancial prices or adjusted by the standard conversionfactor. The economic output prices are actual border prices for comparable imported wood andwood products, adjusted for processing costs and inland transport as required.

I

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6. BENEFITS, JUSTIFICATION AND RISK

A. BENEFITS

6.1 The project would generate the following benefits: (a) an increased supply of woodproducts; (b) reduced wood imports; (c) strengthening of human resources and sectorinstitutions, which would raise the overall productivity of resource use in the sector; and (d) awide variety of environmental benefits. The major financial benefits of the project would beincremental timber production valued at $5.0 billion, bamboo production valued at $379.1million, fruit and nut production valued at $354.4 million, other miscellaneous forest productsvalued at $144.0 million, and fuelwood valued at $68.0 million, for a total project value of $6.0billion in current financial prices over the 33-year life of the project. As reviewed below, muchof this production would accrue to some of the poorest and most remote households acrossChina. The major environmental benefits would include increased forest cover, preservation ofbiodiversity of global significance, and reduced soil erosion, flooding and river sedimentation.MFO attempted to quantify and value some of the indirect environmental benefits based onguidelines provided by IDA during project preparation. It estimated that the protection forestprogram would reduce sediment discharge in the Yangtze River basin by a total of 412 milliontons of soil over a 33-year period. Based on the current cost of sediment removal at dams inproject areas, the benefit of reduced sedimentation was valued at $11.8 million.

B. EMPLOYMENT AND NCOMES

6.2 The project's afforestation activities would generate over 350,000 person-years ofwork for 600,000 rural households during the project's six-year implementation period. Theother project activities related to mnrsery management, research, and extension would alsogenerate additional employment opportunities that have not been calculated. In addition, thenature reserves management component would develop an innovative pilot program to addressthe critical issue of social sector and labor reform in state-owned enterpfises, based on theredeployment of redundant labor from timber harvesting enterprises to new, environmentallysustainable employment. 1

6.3 The project would have a particularly strong impact on poverty reduction, since itfocusses on resource constrained, remote mountainous areas. The incidence of absolute ruralpoverty is much greater in the project areas than throughout the rest of the provinces, as a resultof limited access to productive land, low agricultural productivity, limited off-farm employm atopportunity, and underdeveloped human capital. MFO estimates that 20 percent of all projectbeneficiaries fall below the absolute poverty line. In line with the recommendations of a recentWorld Bank report on poverty in China (No. 10409-CHA), the project would create new income

- 48 -

earning opportunities in poor areas based on the best use of indigenous natural and humanresources, which would raise all beneficiaries above the poverty line. It is estimated that projectlabor payments would lead to a 100 percent increase in annual income for poor householdsduring the six-year implementation period, from an average of 250 to 500 yuan per capita peryear. However, the more significant income generation would occur at the time of thinning andfinal harvesting, which ranges from 7 to 30 years depending on the product, species, and region.It is estimated that net revenues from project production would lead to a five-fold increase inincome for project households on an annual basis over the life of the project. This productionincome would provide more than sufficient capital for consumption and investment requirementsand, consequently, would break the poverty cycle for the poor beneficiaries.

C. RENT AD CosT RECOvERY

6.4 Cost recovery would involve several elements. The cost of fertilizer, agro-chemicals, seedlings, and other inputs would be recovered by payments from beneficiaries. Thecost of research, extension, training, and technical assistance would be recovered either throughfees levied directly on beneficiaries or through taxes paid on project production. Project taxesinclude the product tax (10 percent of gross revenues), the specialty tax (8 percent of grossrevenues), and a portion of the reforestation and reinvestment fees described in para. 3.3. Thecost recovery analysis in Annex ES shows that at present tax rates, project charges would besufficient to cover project costs with a recovery index of 94 percent discounted over the life ofthe project. Rent recovery is 59 percent discounted over the life of the project.

D. FINANCLAL AND EcoNoInc ANALYSIS

6.5 Financial and economic analyses has been carried out for each species, the plantationand protection forest components, and the project as a whole (see Annex E6). The analysis isbased on: (a) one rotation for all species, so that none of the costs and benefits of replanting asite have been considered; (b) a 33-year time period, which captures the full rotation of allplantation species but not all protection forest species (consequently, residual values have beenassumed in the final year for the protection forest); (c) complete production and harvesting costs,including the costs of extraction trails, logging, and skidding to the roadside; and (d) completeinvestment costs, including physical contingencies. The rates of return for individual speciesinclude costs related to project supervision and management, environmental monitoring, andinformation management; but they do not reflect any costs related to the project's nurseryprogram, research and extension program, or institutional capacity building program. However,the analysis of the components and the project as a whole includes all these costs.

6.6 The financial rates of return (FRRs), before tax and debt service, for most of theindividual species grown in the plantation component are about '5-2- nercent. However, severalspecies generate particularly high returns, including Populu: simon z7 percent) and eucalypt(29 percent), as a result of their shorter rotations and high market values. The FRRs for speciesgrown in the protection forest component are generally much lower since they are managed tooptimize environmental not financial benefits. The FRRs for timber species and the hill closingmodels are about 10-13 percent. However, the economic tree crops generate good returns:

- 49 -

Eucommia is 18 percent, pear is 21 percent, chestnut is 23 percent, and sumac is 26 percent.The FRRs for the plantation and protection forests components are 18.1 and 15.1 percent beforetax, and 14.4 and 13.2 percent after tax, respectively. The overall FRR for the project is 17.6percent before tax and 14.2 percent after tax. Sensitivity analysis indicates that these fmdingsare relatively robust to wide changes in key parameters. Output prices would need to declineby 41 percent, production costs would need to increase by 67 percent, or capital costs wouldneed to increase by 112 percent in order for the overall project FRR before tax to fall below 12percent.

6.7 The economic rates of return (ERRs) are based on prices described in para. 5.9.The economic prices for traded inputs and outputs are based on World Bank price projectionsor border price equivalents. The economic prices for non-traded inputs, such as labor andseedlings, are based on a standard conversion factor of 0.97, except for sldlled labor, which isbased on a conversion factor of 2.0.3 All economic values were converted to local currency atthe January 1994 exchange rate of Y8.70 to $1.00. The economic analysis does not incorporateany valuation of indirect environmental benefits such as reduced soil erosion.

6.8 The ERRs do not differ significantly from the corresponding FRRs, for thefollowing reasons: the standard conversion factor is close to 1; while the economic prices forlarge diameter timber are slightly higher than financial prices, the economic prices for pulpwoodare slightly lower; and while the economic price of unsldlled labor is lower than the financialprice, the economic price for skilled labor is higher. The ERRs are about 15-20 percent formost of the individual species grown in the plantation component and 11-13 percent for thetimber species and hill closing models in the protection forest component; again, several otherspecies have higher returns. The ERRs for the plantation and protection forests components are18.0 and 16.2 percent, respectively. The overall ERR for the project is 17.7 percent, which isquite robust to wide changes in variables. Output prices would need to decline by 41 percent,production costs would need to increase by 71 percent, and capital costs would need to increaseby 112 percent in order for the overall project ERR to fall below 12 percent.

F. RISKS

6.9 Since MFO has a strong record in managing large afforestation programs, there arefew technical and institutional risks. The main risks include: (a) an unexpected decline indomestic prices for certain project outputs, which has been addressed through a high degree ofdiversification of species and end-products in the project design; (b) inadequate provision of localcounterpart funding during implementation, which has been addressed through an understandingthat failure to provide local funds on a timely basis would result in the exclusion of theafforestation entity, county, or provincial government in continued involvement in the project;and (c) an outbreak of pests or diseases, which has been addressed through a comprehensiveforest health monitoring program and provision of pesticides as required during implementation.

3 The standard conversion factor is calculated on the basis of zn official exchange rate ofY8.70 to $1.00 and a shadow exchange rate of Y9.00 to $1.00.

- 50 -

7. AGREEMENTS AND RECOMMENDATIONS

7.1 At negotiations, assurances were obtained from the Borrower that:

(a) all plantations and protection forests would be established in accordance withafforestation models acceptable to IDA, and MFO would complete the reviewof all technical design plans for afforestation sites in accordance withguidelines acceptable to IDA by October 31, 1995 (paras. 2.4 and 2.18);

(b) an annual work plan and fnancing plan for the plantation and protectionforest components for the next calendar year would be furnished to IDA forreview by December 31 of each year (paras. 2.13 and 2.19);

(c) an evaluation report for the current year and an annual work plan for the nextcalendar year for the planting stock development and nursery managementprogram (para. 2.32), the research program (para. 2.35), and the extensionprogram (para. 2.38) would be furnished to IDA for review by December 31of each year;

(d) three reports analyzing the results of the accelerated research program infertilization (para 2.35), the accelerated research program in planting density(para. 2.35), and the environmental monitoring program (para. 2.52) wouldbe furnished to IDA for review by May 31, 1997;

(e) all training and study tours would be carried out in accordance with a trainingprogram acceptable to IDA (para. 2.45);

(f) policy studies would be carried out in accordance with terms of reference andtining acceptable to IDA, which would include recommendations for futureactions; such studies would be provided to IDA for comment prior tocompletion; and thereafter, the completed studies would be revised in light ofIDA's comments and provided to the responsible government agencies forconsideration (para. 2.45);

(g) all project activities would be carried out in accordance with an environmentalmanagement plan acceptable to IDA (para. 2.46);

(h) all agrochemicals used under the project would be selected from a listacceptable to IDA; and the storage, handling, distribution, and use of such

- 51 -

agrochemicals would be consistent with guidelines satisfactory to IDA (para.2.50);

(i) all PMOs at the national, provincial, and county levels would be establishedand maintained in forestry agencies, with staffing, functions, andresponsibilities acceptable to IDA (para. 4.8);

(j) the portion of the IDA credit for establishment of plantations (and relatedplanting material, research and extension, and capacity building activities)would be on-lent to the provinces and thereafter to the final beneficiaries atan anmnal interest rate not to exceed 4.5 percent for funds on-lent in foreignexchange and 6.5 percent for funds on-lent in local currency, with arepayment period of 20 years, inclusive of eight years' grace period onprincipal repayments (paras. 4.18 and 4.20);

(k) the portion of the IDA credit for establishment of protection forests (andrelated planting material, research and extension, and capacity buildingactivities) would be on-lent to the provinces and thereafter to the finalbeneficiaries at an annmal interest rate not to exceed 2.5 percent for funds on-lent in foreign exchange and 4.5 percent for funds on-lent in local currency,with a repayment period of 25 years, inclusive of ten years' grace period onprincipal repayments (paras. 4.18 and 4.20);

(1) consolidated accounts would be maintained for all components for annualauditing by independent auditors acceptable to IDA, and the consolidatedproject accounts together with the auditor's report would be submitted to IDAwithin six months of the close of each financial year (para. 4.24);

(ni) MFO and the provinces would undertake with IDA a midterm review of theprogress of and prospects for implementation by September 30, 1997 (para.4.28).

7.2 Issuance of Project Implementation Rules (PIR) acceptable to IDA, and provisionof written acceptances of the PIR and on-lending terms and conditions from all project provinces(except Shaanxi) would be a condition of effectiveness (para. 4.8).

7.3 Subject to the above conditions, the proposed project would constitute a suitablebasis for an IDA Credit of SDR 141.7 million ($200 million) on standard IDA terms with 35years maturity to the People's Republic of China.

CHINAFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

Forest Area in ProlctPrvinces 1I(000 ha)

Pfovine Thber Forest ConservatIon Specia Fudwood Lightly TotProvl~~~~~ca TImber Forest ~~~~~~~~~FOF., Faest Fores Stootad

Young Middb Pro-mature Mature Over Matue Sub-total Tmber Banboo

Hebei 423.7 416.1 91.8 35.9 2.1 968.0 342.7 12.7 201.0 202.0 1,727.0

Shanxi 288.0 408.8 89.0 34.4 8.0 828.2 245.4 12.8 10.4 460.0 1,547.4

Uaonrn 1,018.7 762.8 189.6 104.9 3.9 2,099.9 809.0 33.1 354.0 164.5 3,401.1

HIloang 4,680.0 5,650.0 1,870.0 2,790.0 400.0 16,200.0 1,290.0 720.0 310.0 990.0 10,610.0

Zhelan 1,372.8 1,097.0 193.1 161.8 2,824.7 74.9 29.0 31.4 492.9 3,462.9 509.8

Anhtd 870.6 481.1 71.0 34.3 9.0 1,465.9 119.5 14.2 42.6 302.8 1,945.0 203.4

Fuflan 1,689.3 1,560.3 181.3 80.1 9.6 3,380.8 223.9 31.3 192.a 934.2 4,782.6 609.2

Jlangxl 1,687.8 1,383.2 268.7 179.2 38.8 3,555.7 191.9 32.0 677.2 1,421.3 6,778.1 534.0

Henan 530.9 172.3 28.8 15.1 2.4 749.5 341.2 27.7 117.3 266.4 1,491.1 7.0

Htue 1,228.6 984.3 233.4 00.2 10.7 2,617.1 336.4 48.9 428.9 437.0 3,767.3 121.0

Hunan 2,723.3 1,033.2 148.2 255.0 53.8 4,213.3 225.3 80.0 288.5 609.5 5,390.6 609.6

Guangdong 2,828.8 2,579.2 648.2 163.0 6,117.2 282.0 331.5 380.4 332.8 7,423.7 311.9

Guanxl 1,678.4 938.2 753.7 268.8 153.6 3,788.7 859.0 14.4 129.7 647.4 6,339.8 240.1

Sichuan 2,239.0 1,707.1 072.0 093.8 07B.0 8,289.7 3,382.1 163.8 12.8 2,900.2 12,738.7 342.1

Guizhou 840.9 478.3 67.2 87.2 20.8 1,472.4 230.2 43.2 209.4 896.3 2,850.6 49.8

Yunnan 2,139.8 1,017.2 844.1 028.7 489.8 5,719.2 1,799.2 033.4 461.0 3,181.9 11,764.7 124.8

total 26,018.2 21,214.1 0,230.1 6,852.2 1,878.1 61,190.7 10,732.3 2,218.1 3,717.8 14,097.6 91,966.6 3,622.611 Based on 1992 data.

CHINAFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

Foresw Land Use In ProMt PAnc"s IIrooo .hi

NpevAvi AvWidb LS NonAForm" l fLaPMWMD FLft Stocked UBW~~~~~~LlhlI NefrUomaSt,v IorTotal CoverasePiovince Filly Stocked *~~~~~~~~~~~~~Sakie"nt.ii Aftfoeststlon Land i%f -I

T_b Conseivation Spad Fswood Econado lFoests Foets Forsel Foets Fret _

Hbl 908.60 342.70 12.70 20100 769.00 2,204.00 202.00 93A0 127.30 7.30 2,907.00 13,108.00 18,739.90 12.24

Shold 828.20 246.40 12.80 10.40 172.40 1,269.20 460.60 797.10 106.60 19.20 3,S00.40 9,110.40 16,661.60 0.10

Uauiln 2.098.90 808.00 33.10 354.60 1,a33.00 4,689.60 164.50 161.00 584.80 12.20 1,034.30 7.46.10 14.692.50 32.14

IeonJleng 15,200.00 1,290.00 720.00 310.00 70.00 17,690.00 990.00 140.00 2.160.00 30.00 3.e90.00 7,660.00 32,160.00 54.70

Zb2ao- 2,824.70 74.90 29.00 31.40 90.60 508.60 3,660.40 492.so 285.30 100.30 886.60 4,023.10 9,366.60 38.01

AnhJ 1,465.90 119.60 14.20 4'.60 410.60 203.40 2,258.10 302.00 145.80 121.80 6.90 1,651.10 9,433.00 13,816.50 16.33

Fi4Isn 3,380.60 223.90 31.30 182.60 665.80 60o.20 6,003.40 934.20 243.50 290.20 2,601.70 3,171.10 112,10.10 41.18

.Ilaunsgs 3,SS5.70 191.90 32.00 577.20 1.101.00 534.00 5,992.40 1,421.30 107.20 426.90 2,548.40 6,176.10 16,672.30 35.94

Mogun 749.60 341.20 27.70 117.30 328.40 7.00 1,571.10 255.40 175.00 69.40 8.30 1,622.10 12,998.70 16,700.00 9Al

H4bd1 2,617.10 335.40 48.90 420.90 500.90 121.00 3,952.20 437.00 930.10 146.00 1.00 2,085.00 11,038.70 19,690.00 21.26

4,213.30 225.30 00.00 268.60 2,101.70 560.00 7,618.40 B0060 859.80 377.60 2.00 2,627.20 9,109.10 21,203.60 326.4

0um-dong 8,117.20 262.00 331.50 380.40 S5.20 311.90 7,998.20 332.60 373.10 1.601.20 1.20 607.20 6,963.60 17.67.106 45.25

Oubnd 3.788.70 858.60 14.40 129.70 809.20 240.10 0,021.70 547.40 677.10 s13.00 5,435.70 10,564.30 23.760.00 25.34

SktaImn 6,289.70 3,382.10 153.90 12.80 69150 342.10 10,072.10 2,900.20 7,828.20 265.90 6.40 4,902.00 29,932.00 56,707.70 18.17

Guiiwu 1,472.40 230.20 43.20 209.40 215.00 49.80 2,220.60 895.30 682.60 116.70 9.00 4,624.30 8,19#.00 17,647.10 12.50 00 P

Ywman 5,719.20 1,799.20 633,40 451.00 076.00 124.80 9,404.20 3,101.90 4,0089.00 201.10 7,440.50 13,904.70 38.267.40 24.17o

ILAToal 81.190.70 10,732.30 2,218.10 3.717.90 10,732.20 3,622.50 92,213.80 14.09780o 17.008.20 7,203.50 103.10 48.180.30 164,245.80 343,7t2.10 26.83

11 Based on 1982 data211Heft between fWb tocked forst see and total se.

CNnaForest Resource Development and Protection Project

Fortest Stock In Proiect Proyices 1/1'000 CtI Meteri

Coner vation Speel Fuelwood LihtlyPtovlne TimberFamst Forest F" st Forest: Stacker Other 21 TotalYoung Middle fte-matur Mature Over Mature sub-total Tkber Bamboo 3/

Hebei 6,517.7 20,518.4 8,008.2 3,020.6 173.8 36,234.0 14,890.1 790.6 527.0 3,620.9 20,359.5 70.428.7Shanxi 6,070.0 23,158.8 7,3s4.9 1,141.9 223.8 37,96s.4 5,704.9 902.5 176.0 4,803.0 1,242.5 60,805.1uaonln 27,189.8 52,334.1 14,735.7 10,f60.8 388.3 105,298.5 10,001.7 1,517.9 607.4 2,622.8 4,025.5 131,173.8H _llongjlan 189,960.0 440,950.0 208,300.0 327,800.0 54,610.0 1,201.400.0 91,590.0 73,470.0 1,300.0 30,600.0 92,020.0 1,497,040.0ZhejlN 19,167.1 43,481.3 119061.6 14,134.8 98,734.8 2,502.0 2,922.6 454.6 ,279.3 11,6633 112,466.6 646,130.0Anhti 18,626.0 28,214.3 6,607.2 3,042.6 1,058.0 67,547.1 3,702.9 1,047.9 211.9 6,797.3 21,052.3 90,159.4 410.9300Fupan 45,749.0 165,883.2 26,226.8 10,147.9 3,785.6 244,792.5 12,374.5 4,530.1 2,120.1 28,387.7 880,71.6 378,682.4 797,490.0Jlangx 32,408.4 76,836.0 26,450.5 17,903.6 4,353.5 156,958.6 5,164.6 3,440.5 2,939.9 27,238.1 46,450.2 242,191.9 957,3e0.0 Henan 11,999.3 8,600.0 1,801.3 1,439.0 214.8 23,853.4 14,505.0 1,861.2 212.0 2,499.1 48,683.8 91,616.1 5,120.0Hubel 31,061.2 37,865.7 15,304.0 C.103.8 546.1 90,870.8 19,202.2 5,765.0 3,170.8 4,874.3 14,009.2 138,13.1 191,300.0Hunan 40,151.9 59,999.0 12,055.8 23,841.9 5,395.4 141,444.0 10,985.0 4,420.0 2,240.4 14,402.5 11,450.6 184,849.7 024,390.0Guandong 38,080.0 .98,430.0 28,770.0 14,080.0 177,370.0 10,260.0 9,880.0 3,000.0 4,840.0 7,088.7 212,428.7 183,680.0Guangid 10,497.6 42,284.2 55,370.0 21,264.4 16,231.1 163,653.3 56,898.0 1,953.8 1,097.2 12.901.8 28,745.9 265,240.0 409,170.0Sichuan 45,068.4 112,736.1 92,585.4 236,067.2 220,913.8 713,370.7 529,722.7 29,337.6 578.7 83,771.8 53,010.4 1.409.791.9 430,210.0Gukhou 24,978.0 29,896.1 7,226.8 7,954.9 4,184.9 74,240.5 21,005.9 1,722.9 4,981.1 18,947.7 18,130.6 139,680.0 405,780.0Yunnan 99,944.6 154,030.2 108,173.0 110,904.2 184,437.1 61,.649.1 257,181.1 160,810.0 29,740.5 135,889.4 1265234.8 1,366,406.7 128,680.0total 033,364.0 1,388,010.0 8265941.0 8165430.3 502,516.0 3,965,273.3 1,072,901.1 300,460.8 53,354.1 393,442.5 592,298._ 8.377,730.6 5,240,140.01/Bsead on 1992 data.2 InchxIn timber ftom scattered, faln and dead trees.3/ In '000 bamboo plants.

CIINAFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

TImb#r Suppol In Prolet ProvineC'OO Cubic Metwe

P,ow,. Yeau Consvalntion lnust,- Othta Totat

Usban Area Rult Area Sub-total Ma Ptp" PacIaginat PK4 funituo IWood Aticuttuw Otbo II Sub-total Oto 21 hntel-psovinas Sub-total Timbet Bamboo 31 S9np 4l

Hebe 2000 256.0 470.0 726.0 207.4 42.7 17.0 81.5 12.3 41.2 16.8 419.8 364.9 364.9 1,609.02010 374.0 6809.0 1.082.0 303.6 02.6 24.9 110.3 10.0 60.2 24.7 613.1 633.0 633.9 2,200.0

Shan6 2000 122.2 738.7 860.9 663.4 26.6 34.4 36.0 7.6 74.6 44.1 779.1 *0.0 96.0 1.736.02010 233.3 1,147.0 1,381.2 1,113.0 40.4 51.2 92.6 10.1 t66.0 6W.0 t,667.6 214.1 214.) 3,162.9

Uomo^9 2000 62.0 472.0 624.0 161.0 23.0 30.0 W04.0 0.0 42.0 24.0 093.0 263.0 203.0 1.460.0 186.02010 164.0 667.0 821.0 206.0 34.0 661.0 162.0 6.0 61.0 34.0 1,063.0 328.0 326.0 2,200.0 258.0

Halesn? 2000 1,660.0 1,360.0 2.920.0 200.0 250.0 1,300.0 690.0 490.0 400.0 280.0 3,610.0 1,680.0 4.10,0 6760.0 12,290.0 o02010 1,940.0 1,620.0 3,460.0 260.0 280.0 1,410.0 730.0 640.0 230.0 380.0 3,930.0 2,310.0 4,760.0 7,070.0 14,460.0 0.0

Zh*t 2000 400.0 1,703.0 2,103.0 19.0 160.0 360.0 300.0 200.0 200.0 58.0 1,307.0 300.0 300. 3,710.0 00.o0200 600.0 1,910.0 2,618.0 8. 180.0 600.0 360.0 292.0 200.0 6.0 1,664.0 360.0 360.0 4.620.0 748.0

AMlud 2000 124.0 1.359.0 1,483.0 174.) 133.0 475.0 626.4 306.0 606.0 102.7 2226.0 66.6 6S.6 3,763.6 1,300.020)0 300.0 2971.2 3,271.2 264.6 262.3 678.8 721.8 444.6 680.6 337.3 3,290.9 310.2 310.2 8.872.3 3,400.0

Fujean 2000 743.4 1,66.0 2.248.4 140.0 340.0 2,180.0 310.0 600.0 1,192.6 340.0 6.002.6 1,028.3 2,673.0 3X601.3 10.862.3 61,30.0 1.22.02010 940.0 1,994.0 2t034.0 160.0 368.0 2.449.4 469.0 660.0 1,262.1 396.0 6.624.6 1,180.0 2.673.0 33.0 12.311.6 7,88s0.0 1,640.0

.Iaoi|d 2000 1,110.0 1.36980 2.467.0 203.0 60.0 817.0 260.0 279.0 1.281.0 110.0 3,000.0 67. 1,600.0 2.0)7.0 7.604,0 44.630,02010 t,366.0 1.8660 3,033.0 270.0 60.0 1,020.0 276.0 638.0 1,416.0 t22.0 4,600.0 617.0 1,800.0 2.417.0 A600 68.320.0

enon 2000 000.0 2,740.0 3.640.0 1,400.0 300.0 200,0 660.0 100.0 100.0 160.0 2,00.0.0 660.0 wo.0 7,000.02010 1,300.0 3,800.0 6,100.0 1000.0 400.0 300.0 700.0 160.0 200.0 260.0 3,800.0 800,0 800.0 0,900.0

2000 820.0 1,440.0 2,260.0 210.0 40.0 120.0 100.0 100.0 300.0 110.0 s60.0 700.0 700.0 3a40.0 26.700. 1.640.02010 1,100.0 1,s00.0 3,000.0 300.0 100,0 660.0 160.0 260.0 600.0 160.0 2,010.0 1,638.0 1,639.0 6,648.0 63,400.0 3.670.0

HU"a 2000 646.9 3,229.3 3,876.2 680.) 221.8 490.1 67.6 206.1 7.0 I to.0 1,60.6 1,172.0 1,172.8 B.728. 86.772.8 700.62010 704.3 3,438.9 4,143.2 68.6 268.3 612.9 66.2 226.0 10.4 170.5 1.090.9 1,308.8 1,308.8 7,344.0 118,716.8 841.6

2000 044.0 t,416.0 2,380.0 160.0 341.0 1,200.0 243.0 120.0 63.0 224.0 Z331,0 877.0 977.0 6,688.0 67,8760 002010 2,226.0 2.6)0.0 4.836.0 180.0 416.0 2,000. 365.0 220.0 66.0 24a,0 3,484,0 1,621.0 1.621.0 9,840.0 72,346.0 0.0

Obgsd 2000 390.0 1,170.0 1,600.0 220.0 02.0 1,620.0 380.0 70.0 46.0 110.0 2817.8 722.4 722.4 6.200 I86,000.0 311.12010 496.0 1,307.3 1,603.3 241.1 70.0 1,023.6 426.0 60,0 520.0 136.0 3,384.7 602.0 802.0 6,000.0 2t.000.0 404.3

sichun 2000 1,600.0 2,094.0 3X94.0 770.0 400.0 1,260.0 t,800.0 100.0 80.0 130.0 6,268.0 860.0 860.0 9,70w.0 1,600.0 400.02010 1,00.0 2.400,0 4.000.0 068.0 600.0 1,960.0 1,900.0 282.0 1.250.0 190.0 7.110.0 840.0 840.0 12,060.0 2,000.0 7.0

iAto 20C0 720.0 360.0 1,o00.0 180.0 26.0 196.0 1l0.0 200 36.0 79.0 666.0 76.2 76.2 1,820.2 2,000, 140.02010 1,307.0 660.2 1,867.2 200.0 60.0 320. 210.0 60.0 60.0 160.0 1,060.0 136.7 136.7 3,062.8 2,200.0 330.0

vim"" 2000 204.3 410.3 014.6 262.3 40.2 2B4.3 202.2 262.2 161.9 101.8 1.314., 1,400.6 1t,400. 3,330,0 64,80020)0 266.6 616.6 774.0 330.8 60.8 673.6 229.3 320.3 229.3 108.3 1.961.3 1,688.7 t.s0s.7 4.826.0 66,700.0

TotS 2000 10t,600. 21,836.3 32,336.1 6,388.8 2,486.1 10,811.6 6,892.2 2,778.1 6,872.) 2,009.4 34,960.6 10.672.7 8,233.0 18,006.7 66,162.4 362,608.6 6.468.62010 14,907.1 28,004.0 44,001.1 7,279.6 3,271.3 16t,78.1 8,877.2 4,073.0 8,919.2 2,827.7 47,024.0 14,7e0.6 8,233.0 24,021.6 1t1,040.8 403,570.6 12,001.8

It tkAieg bat. _uck, fai skew, pow p, matc. ocl, textile, sowesein ae .pooSb.21 btWc&ang Supply v Loslcelweous domands.3/ h 'OCO ba_bo plants.41 Pnsft desod tom wood aubtha of stoo, plastic end cememt.

4;h,

CtiNAFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

rooo CNe

Proin youC_X ta Othe Tobt

Utben Aes Rhal A Sub-totd M1. Reope PeAlino A4 Eurnitum. Fwood Agduhluemo Ow tt StA-totl Other V itewpo4ner Sub-toed rrm Biameb 32 Sevtag 41

2000 1t.70.0 1.600.0 3,470.0 1,006.0 204.0 61.0 30.0 68.6 168.3 0.06 2.001.7 1,743.3 1.743.3 7.216.0

2010 2.,80O 1,600.0 4.300.0 1,330.0 440.0 110.0 440.0 0.0 263.0 110.4 2,03.4 2,66.0 2.,866.0 .9t8.4

Shanx 2000 867.9 1,321.6 1.989.8 2484.7 60.0 17.0 190o. 4S.0 263.0 161.0 3.342.7 346.7 46.7 6.76.2

2010 685.0 2.116.9 3,100.0 4,12n.8 147.0 26n.0 370. 63.0 662.0 211.0 6,683.6 663.0 683.0 6.6).1

I..eo.ning 2000 1,327.0 1.142.0 2t466.0 482.0 67.0 1.000.0 4800 14.0 99.0 106.0 2.2)6.0 686.0 666.0 6.441.0 166.02010 1.439.0 1.2017.0 2,646.0 620.0 100.0 1.468.0 012.0 24.0 106.0 123.0 2,660.0 743.0 743.0 6.338.0 268.0

2000 2.260.0 2.1)0.0 4.430.0 260.0 300.0 2,360.0 160.0 460.0 60O.0 400.0 4,420.0 2,220.0 2.220.0 11,070.0 60.0

2010 2530.0 2.2)0.0 4.60.0 280.0 260.0 3.210.0 160.0 460.0 800.0 240.0 6.470.0 1,170. 1.770.0 12.040.0 60.0

2ImeN*e 2000 600.0 2.130.0 2,730.0 23.0 180.0 367.0 767.0 462.0 200. 68.0 2.067.0 6o0 603.0 6,400.02010 700.0 2,130.0 2.,30.0 20.0 180.0 665.0 641.0 677.0 200.0 68.0 2.666.0 601.0 601.0 56900.0

Attn. 2000 624.0 3.12.9 3,766.6 234.1 293.9 936.0 026.4 328.0 710.6 362.7 3.e87,6 236.6 236.6 7,700.0 1,300.0

2010 1.018A 4.043.e 6,060.0 314.6 412.3 1,020.0 866.6 600.9 SS66. 761.4 6.02a,6 610.2 510.2 to0,00.0 3,400.0

Fu#sn 2000 1.0000. 2,630.0 3,630.0 166.0 610.0 3A,10.0 610.0 610.0 1,647.0 440.0 7,142.0 1,660A. 2,673.0 4.423.0 16.136.0 60,600.0

2010 1,300.0 2,660.0 4,2e0.0 166.0 160.0 4.200.0 626.0 70 2,137.0 480.0 6,126.0 2,060.0 2,673.0 4,633.0 16,016.0 62,60.0

Q2000 1.17.0 1,383.0 2,681.0 270.0 60.0 1.3s1.0 260.0 3.0 121.0 110.0 3,740.0 617.0 2,000.0 2,617.0 6.91,0 64,07002010 1,438.0 1.66A.0 3,122.0 270.0 60.0 1,963.0 276.0 663.0 1,416-0 122.0 4,646.0 6:7.0 2.600.0 3.017,0 108.04A 66910.0

Henan 2000 1.300 3,600.0 5,200.0 2.000. 400. 200.0 600.0 100.0 300.0 200.0 4.000.0 600.0 600. 10000.0 %

2010 1,600.0 6.460.0 7.280.0 2,600. 500.0 300.0 S60.0 200.0 460.0 400.0 6.600.0 1,120.0 1,120.0 14,000.0

Hubdi 2000 1,309.9 1.64,6 3,204.7 260.0 66. 1,116.6 641.4 161.6 42a,0 713.9 3,36t.7 1,00.3 1,006.3 7.672.7 37,00.0 1.640.0

2010 2,193.6 2.376.6 4,670.2 33e.6 44.6 2,000.0 1,110.0 369.6 74.1 1,064.6 6.7#06 1,797.3 1,767.3 1t2,4.0 60,000.0 3,670.0

N.mm 2000 947.5 4,303.6 6,261.0 622.2 2600 1,306.6 1131 270.3 7.0 126.6 2,6s8.7 1,876.0 1,676.0 6,626.7 106,846.3 700.6

2010 1,366.1 6,448.0 8.611.7 956.0 360.0 1,782.4 162.6 369.2 0.4 180.3 3,761.2 2.791.7 2,71.7 1a334.6 127,731.2 841.6

OmeeGdong 2000 1.463.0 2,2e8.0 3,781.0 120.0 314.0 1,826.0 243. 722.0 3.0 224.0 3,301.0 603.0 903.0 7.666.0 62.000.0 478.0

2010 2,341.0 2,464.0 4,635.0 :60.0 416.0 2,446.0 360.0 260 66.0 240.0 4,611.0 1,862.0 1,662.0 :0,9890 01,600.0 13,1.

Gvenl_ 2000 440.0 1,700.0 2,140.0 246.0 60.0 2.0W.0 400.0 180.0 66. 14SA ,620,0 60.0 60. 6.460.0 20,0W.0 360.0

2010 6300 1,660.0 2490.0 270.0 90.0 3.000,0 460.0 120.0 600.0 17Q0 4,70. 1,000.0 1t0000 9.190.0 24,000.0 460.

Sicten 2000 2,067.0 4.817.0 6.74.0 1,100.0 30f0A 1,6.D 3,360 146A 2,038.0 6 o ,620.0 1,700.0 t,70D0 17,0940 2,000. 4S0.0

2010 3,665.0 5,4t6.0 9.3tao 1.2000 30 .0 2,0600 3,620.0 262.0 2,130.0 66.0 s.60,0 2,00.0 2000.0 20,403D0 2t300.0 780.0

OmMou 2000 1,000.0 600.0 1,60W 220.0 36.0 270.0 210.0 30.0 60 ttO. 826.0 100.0 100.0 2.626D0 2.200.0 t:Qo

2010 1.600.0 370o0 2.270.0 300.0 700 400.0 260a0 0.0 100. 200.0 1t,360, :60.0 $60.0 3010.0 6QO.0 400.0

Yunnan 2000 240.0 480. 730.0 310.0 46.0 1,600.0 210.0 645.0 206. 126.0 2,364.0 1,486.0 1,466.0 6,6e0.0 16,160.0

2010 340.0 690. 1,030.0 400.0 69.0 1.600.0 230.0 1.106.0 406.0 142.0 3,686.0 2,o04.0 2,04.0 7.006.0 20,970.0

raw 2800 10,414.3 35,243.1 5.3657.4 .766D.0 3a16. 19AS6.1 6.,0.6 4,743A 6,*.8o 3,437.7 66,396A 416,08.0 4,673.0 21,660.6 133,006. 6,166.3 6,266.6

2010 20,67. 42.047.7 ee,n7.s 13,396. 4.297., 20.342A4 1S,330 6,600.7 10,699.6 4,706.7 77,632,6 22,44.2 6,073.0 27,317.2 173,067.6 4417,6t.3 10689.6

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2: .'OOameehfI

CHINAFOREST RESOURC DEVELOI2HNT AND PROTECTION PROJCT

Afforestatlon Area bV Species and Province

species Hebei Shanxi Heron Lismning Mel longlang Zheltang Anhui Fujian JimnBxi Iubei Htunan Guawgdong GumngI Sichuan Cuizho unnmawn Total

Protection Forest: 150.00 130.00 280.00Cypress/Alder 10.00 20.00 30.00Nasson Pine 17.00 15.0 32.00Chinese Fir 10.00 MO.0 25.00Sawtooth Oak 20.00 2.00 22.00chestnut 23.00 6.00 29.00Pear 4.50 4.50Eucoasil 8.70 8.70Chfnese Swuuc/idhite Birth 7.00 7.00Nilts-Closure-I af 50.00 31.80 81.80litIs-Ctosure-2 b/ 20.00 20.00 40.00

Plantation: 50.00 25.00 25.00 30.00 70.00 35.00 33.00 35.00 52.00 30.00 40.00 35.00 70.00 30.00 25.00 35.00 620.00Chinese Fir 12.00 13.40 6.00 17.5 15.40 5.00 10.00 7.40 13.20 9.30 109.20Nasson Pine 10.00 6.40 8.50 10.00 6.00 8.60 30.10 7.60 11.80 3.00 102.00slash Pine 3.00 1.30 4.40 9.00 10.10 2.40 30.20Loblotty Pine 8.00 4.00 3.10 4.20 6.00 4.00 4.00 33.30Japanese Larch 4.00 13.00 22.60 4.50 44.10Korean Larch 6.70 19.70 70.00 9%.40other Conifer 3.30 7.00 8.90 19.20Chinese Wdite Poptar cl 41.30 2.00 2.00 17.00 4.50 66.80Eucalyptus 4.00 12.40 13.00 9.10 38.50Slack Locust 2.00 11.00 13.00other Broad-leaf Tree dI 1.00 2.30 1.40 3.50 2.40 4.30 3.00 1.50 3.50 0.70 23.60Noso Bamboo - New 2.00 0.40 1.60 3.00 2.00 2.00 11.00woes Samboo, - Rehabilitation 3.00 1.60 4.90 6.00 2.00 4.20 2.00 5.00 2.00 30.70Arundinaria 2.00 2.00

... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Note:al will-closure with no enrichment planting.bI will-closure with enrichment planting.c/ Including Popuus Simonil.d/ including Schisma Sup~erba.

- 58 - Annex B2Page 1 of 2

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

LIST OF PROJECT COUNTIES

I. Intensively Managed Plantations

1. Hebei Province (19 counties and 50,000 ha): Qinghe, Linxi, Jize, Xincheng, Guantao,Dingxing, Xingtai, Yixian, Zaoqiang, Shahe, Zhaoxian, Pingshan, Yuanshi, Shenxian,Weichang, Xiongxian, Chengde, Saihanba, and Mengluan.

2. Shanxi Province (12 counties and 25,000 ha): Guangling, Yingxian, Hunyuan, Datong,Lingqiu, Youyu, Huairen, Zuoyun, Xinrong District, Pinglu District, Yanggao, andTianzhen.

3. Liaoning Province (16 counties and 30,000 ha): Xinmin, Fushun, Huanren, Fengcheng,Kuandian, Xiuyan, Liaoyang, Dengta, Fuxin, Zhangwu, Chaoyang, Beipiao, Kazuo,Panshan, Jianping, and Lingyuan.

4. Heiloneiiang Province (20 counties and 70,000 ha): Wuchang, Yanshou, Mulan,Qing'an, Suiling, Hailun, Tangyuan, Huanan, Hegang, Boli, Baoqing, Linkou, Acheng,Yilan, Jidong, Hulin, Jixi, Tonghe, Ning'an, and Muling.

5. Zhefiang Province (15 counties and 35,000 ha): Songyang, Suichang, Kaihua,Changshan, Longyou, Wuyi, Jinhua, Pan'an, Chun'an, Tonglu, Lin'an, Jiande, Anji,Quxian, and Lanxi.

6. Anhui Province (14 counties and 33,000 ha): Qimen, Xiuning, Yixian, Xuanzhou,Guangde, Ningguo, Guichi, Qingyang, Dongzhi, Yuexi, Taihu, Huaining, Huoshan, andJinzhai.

7. Fujian Province (10 counties and 35,000 ha): Hua'an, Nanjing, Changtai, Minqing,Gutian, Longyan, Yongchun, Zhangpu, Dehua, and Provincial State Forest Farm Bureau.

8. Jiangxi Province (17 counties and 52,000 ha): Chongyi, Longnan, Quannan, Xinfeng,Taihe, Yongxin, Yongfeng, Le'an, Yihuang, Chongren, Dexing, Wuyuan, Geyang,Jing'an, Jingdezhen, Ninggang, and Yifeng.

9. Hubei Province (12 counties and 30,000 ha): Jianshi, Enshi, Lichuan, Xuan'en,Dalaoling Forest Farm, Wufeng, Changyang, Xianning, Tongshan, Chongyang, Fangxianand Puqi.

- 59- Annex uBPage 2 of 2

10. Hunan Province (17 counties and 40,000 ha): Liuyang, Lingxian, Ningxiang, Leiyang,Linxiang, Suining, Xinshao, Zhuzhou, Yongshun, Huaihua, Chaling, Zixing, Chenxan,Yiyang, Hengsban, Qidong, and Youxian.

11. GuanWdong Province (13 counties and 35,000 ha): Deqing, Lianshan, Lianxian,Wengyuan, Shixing, Yangxi, Gaozhou, Zengcheng, Leizhou Forestry Bureau, XijiangForestry Bureau, Yangiang, Xinyi, and Huizhou.

12. Guangxi Autonomous Region (15 counties and 70,000 ha): Ziyuan, Rongshui,Xiangzhou, Liucheng, Yulin, Zhaoping, Hepu, Huangmian Forest Farm, DaguishanForest Farm, Weidu Forest Farm, Liuwan Forest Farm, Gaofeng Forest Farm, QinlianForest Farm, Linghsan, and Nanning City.

13. Sichuan Province (9 counties and 30,000 ha): Qingchuan, Beichuan, Pingwu, ShawanDistrict, Mabian, Leipo, Jiangyou, Shifang, and Qionglai.

14. Guizhou Province (8 counties and 23,000 ha): Rongjiang, Taichuan, LAping, Jianhe,Kaili, Jinping, Huanping, and Tianzhu.

15. Yunnan Province (12 counties and 35,000 ha): Funing, Yongping, Yongsheng, Xinping,Yuanjiang, Wenshan, Mojiang, Maguan, Shuangjiang, Yuntaishan Forest Farm,Jiangbian Forest Farm, and Biquan Forest Farm.

16. Henan Province (8 counties and 25,000 ha): Lushan, Tongbai, Miyang, Songxian,Luoning, Lushi, Lingbao, and Xinyang.

H. Multi-Functional Protection Forests

1. Hubei Province (21 counties and 150,000 ha): Badong, Yichang, Xingshan, Zigui,Zhicheng, Suizhou, Songzi, Nanhang, Baokang, Dawu, Yingshan, Luotian, Huangzhou,Hong'an, Macheng, Qichun, Xishui, Guangshui, Huangmei, Wuxue, and Daye.

2. Sichuan Province (20 counties and 130,000 ha): Baxian, Jiangin, Jiangbei, Changshou,Yongchuan, Fuling, Fengdu, Wulong, Nanchuan, Shizhu, Pengshui, Zhongxian, Kaixian,Liangping, Youyang, eastern district of Suining, Zizhong, Tongliang, Qijiang, andWeiyuan.

B3-60- Page of 2

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-61- AM B3DPage 2 of 2

CEIINAFOREST RESO;URCED DEMD2PM4T AN= PROEMO = J-cr

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Annex B4- 62 - Page 1 of 6

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

PLANTING STOCK DEVELOPMENT AND NUPSERY MANAGEMENT PROGRAM

Introduction

1. Few tree species have achieved the levels of domestication found in agriculure.Forest tree plantng material development is at an early stage and species respond in differentways. Some tree species adapt themselves readily to pnation estblishment and will surviveand grow under the most rudimentary silvicultural managent. Cinminghamia lanceolata(Chinese fir), an indigenous species, and Robiua pseudoaccacaa (black locust), an exotic one,are good examples of this. Others, such as the exotic eucalypts and pines or indigenousPauldownia spp and Metasequoia spp, are less adaptable but can be productive given goodcultural practces. The first three are examples of genera which are made up of a number ofdifferent species, most of which are adaptable like the borassicas of agriculture. The agriculturaland horticultual examples have indicated development patterns that can be used by foresters toimprove planting material and these can be applied equally to the easily adaptable and lessversatle species. Once a genus has shown promise, development starts with the identficatonof adaptable species and then populations that may have developed good, characteristic geneticconstitutions (provenances). Within these populadons will be individuals with significantlysuperior characters for desired productivity - and these will form the core of a breedingprogram. The ultimate objective is the supply of high quality planting stock in adequatenumbers, which may be seeds, seedlings (sometimes cultivars), or clones.

2. The type of plantimg stock chosen will relate to a number )f variables, includinginclude species, climate, site, costs, etc. Some species can be satisfactorily established in anumber of ways (direct sowing in the field, direct sowing into nursery beds or containers,sowing in beds then transplaing into beds or containers, pre-germination and direct sowing intothe field, beds or conainers) while others must have one or two of these practices or they willnot survive. There are an increasing number of species that can be cloned due to the significantimprovements in cloning technology over recent years. These will give planters the option ofcontinuing with seed and seedling planting or changing to cloning; the optimal choice willdepend on establishment costs and productivity. Chinese foresters currently weight establishmentcosts much higher than productivity gains: their principal objective is to obtain as muchproductivity gain within the current costing parameters. However, tree crops are perennial andoften renewable and it is important to gather, analyze and interpret plantation data to linkproductivity gains for yields of different commodities with plant production costs in order torationalize investment in planing stock development.

Planting Stock Oualitv

3. It is well known that plant quality is dependent upon its genetic constitution and the

Annex B4- 63 - Page 2 of 6

physical condition of plants taken to the field; and that survival and growth relates directly toplant quality, given reasonable site preparation practices. The genetic quality of seed is beingimproved through breeding programs in the Chinese Academy of Forestry and provincialresearch institutions and universities. Improved parent stock is being assembled (in clonalorchards) or upgraded (in seed staads) by staff of the National Seeds and Seedling Stations.Details on the genetic aspects of planting stock development are reviewed in Annex B4 onresearch. This annex reviews the technologies leading to improvements in the physical qualityof planting stock.

4. Seedling Uniformity. In order to address the subject of quality, it is essential tohave a base line for comparisons and a systematic process for making compansons. Thefundamental target of any nursery manager is the supply of an adequate number of plants withuniform development, health and quality. This will require recognition of the basic biologicallaw that aU populations have some degree of variability and that this variability can be idenifiedby grading plants within the population into a series of classes depending on the parametersmeasured. These are known as growth class distribution diagrams and it is a biological fact thatnormal plant populations have a bell-shaped growth class distribution curve. If the distributionis packed closely around the center point (mean), the population is homogeneous; but if the belhas an extended base with many classes on either side of its center, then the population isheterogeneous. Heterogeneous populations need special efforts on the part of management toimprove them for planting. Examination of populations in this way sometiies reveals that sizeclasses are considerably more on one side of the mean than the other; this indicates skewedpopulations that are often associated with in-breeding or some other form of disturbed geneticbalance. Such populations need to be handled with particular care. Examples of these fromoutside China are the in-bred populations of Acacia mangium in Sabah and Eucalyptustereticornis in India. It is likely that the Chinese populations of E. exscerta and E. globulus maybe in this category.

5. Measurement of Variation. Variation can be expressed mathematically bycalculating the standard deviation (sd) of the mean (x), dividing this by the mean andrepresenting the result as a percentage, the coefficient of variation (cv). e.g. x = 24.00 cm,sd = 3.47 cm, cv = 14%; x = 24.00 cm, sd = 9.76 cm, cv = 41%. The example shows thattwo populations with identical means have vastly different levels of variation, the higher the cvthe more the variability of the population. When dealing with natural populations, i.e. seedsharvested from the natural forest (called "wild" populations to differentiate them frompopulations with any level of domestication), a high degree of heterogeneity can be expected.Nursery management will have to measure this and decide on the best method to reduce it. Inmany cases, seeds will be harvested from plantations that were either established from earlierplantations or from natural forest harvests. These will have their own characteristics dependingupon the genetic quality of the original harvest and the breeding system of the particular species.Again, any peculiarities due to these factors will appear in the growth class distributions.Therefore, it can be seen that these simple tools will help management significantly improve thehomogeneity and, consequently, quality of their planting stock.

6. Samplina Levels. The system for assessment of nursery populations has alreadybeen discussed with MFO. The new Seedling Production Coordination Group (SPCG) is

- 64 - Annex 4Page 3 of 6

responsible for (a) issuing guidelines for nursery assessment; and (b) amending the agreedplanting stock standards to include not only seedling measurements but also acceptable variationlevels. Data from the assessments will indicate the quality of each nursery and give projectmanagement a clear picture of where the best stock is raised and where more effort is neededon the part of nursery managers to improve their work. In the early stages of the project, it willbe necessary to measure the same samples several times during seedling development in orderto determine the best time for evaluating variation and planning culling. Since nursery sizevaries greatly under the project, it is important to decide on a suitable level of sampling; thiscan only be determined by trial and error. For example measuring one plant in one thousandis a 0.1% sample unit, one in ten thousand is a 0.01% sample unit, and so on. The critical issueis that the sample should represent the population, i.e. the larger the variation in the population,the larger the sample should be. Fortunately, in nurseries it is possible to stratify sampling byallocating sample units to beds; it is essential that beds are adequately and randomly sampled.

7. Seedling Assessment. The most usual data used in seedling measurement are theheight and collar diameters. In some cases, particularly for broadleaf plants, the number ofnodes above the cotelydon node are recorded. Every plant in the plot is measured and thisshould be done systematically, always starting from the same corner of each plot and measuringalong one row and down the next. For plants in broadcast beds, this will not be possible;nonetheless, measurements should still commence at the same selected corner of the plot. Fieldobservations have indicated that root development is equally if not more important than shootgrowth. Therefore, in the initial phase of the project, it will also be necessary to carry out rootdevelopment assessments. Since the sample plots will be measured more than once during thegrowing season, it will be necessary to choose the samples for root assessment from plotsadjacent to measurement plots. Two seedlings of mean height and collar diameter, two of meanheight and collar diameter 0.5 sd's above and below the mean (6 plants in all) are chosen forroot evaluation. If mnrsery staff believe more intensive root evaluations are needed, then thesenumbers can be increased. It is important that the outermost two rows of the bed are notsampled for root development assessments.

8. Data Analysis. The means for each parameter in every plot are calculated togetherwith their sd's and cv's; with this data, the nursery manager will be able to have some idea ofthe uniformity within the nursery. Since beds are usually stocked at different times, even withstock from the same seed lot, this information will give a picture of variation caused by locationin the nursery and different sowing and/or pricking times. Management should carefully reviewthe distribution of growth classes to be sure that the populations being raised have normalpatterns. If they are skewed in any way, immediate steps should be taken to rid the nursery ofthe unwanted plants causing the skew. If the nursery is large and has been divided into anumber of blocks, the next step for management analysis is to pool the data from each blockseparately and calculate the mean, sd and cv. Once again, this gives a picture of how the plantsare responding to management throughout the nursery. Finally the mean, sd and cv is calculatedfor the nursery as a whole.

9. In the early years of the project, measurements will be needed at intervalsthroughout the growing period, perhaps measurements every fifteen days. In the north, whereseedlings remain in nurseries for more than a year, this will accumulate a good deal of data even

AnneLB- 65 - Page 4 of 6

though measurements will only be needed during the growing period. Experience will quicklyindicate if this interval is suitable for nursery evaluation. The objective is to ensure that theplants leaving the nursery will be. of uniform size and development for field planting. TheSPCG will decide on the plant quality to be sent to the field from each nursery and will be ableto inform field staff of the specific numbers that will be required. Needless to say, the numberof high quality uniform seedlings produced in a mursery will be much less than the total numberof seedlings grown, in view of the type of populations currently developing from theundomesticated or, at best, partially domesticated seed lots available in China. Seedlings thatfall outside the required parameters will have to be culled. By strictly adhering to the agreedtechnical standards, the SPCG will quickly cause nursery management to determine reasons forpoor homogeneity and devise methods to improve it.

Tvve of Planting St

10. Planting stock can be divided by origin (seedlings or clones) or by physicalcharacters (bare-root or contaimezed). Of course, there can be many sub-divisions of originreferning to the level of domestication, which relates to the degree of testing each has undergone.For example, better homogeneity and growth would be expected from: (a) full-sib than half-sibseeds; and (b) clonal material from clones selected through clonal testing procedures than thosefrom primary clones (untested phenotypes). It is very important that nursery managementdiffereniae between seedling and clonal material because each has different characteristics. Aseedling is a complete plant made up of both shoot and root systems in the primary stage ofjuvenility. During germination, it has to go tbrough certain normal biological patterns: thehypocotyl extends, cotyledons unfold and become photosynthetic, the first leaf is formed thatmay be distinct from later leaves, and then the plant gradually develops. On the other hand,cuttings only have shoot characters at the start, which are already in a somewhat advanced stageof development. As soon as cuttngs form roots, they proceed with normal growth, which isusually much quicker than that of seedlings at the same stage in the mnrsery. Thus, it is notunusual for cuttings to require only half the nursery period of a seedling.

I. Seedling versus Cuttigs. Some species have high rooting propensity, which meansthey can be directly set in containers or into bare-root beds. Others are more difficult topropagate (30% to 60% rooting) and need to be set in rooting beds before transplanting to eithercontainers or bare-root beds. Chinese fir and poplar are both excellent examples of the formerand the pines of the latter. Some species have to be set from physiologically active material andwill need high humidity conditions to prevent desiccation of tissue while roots form. Others canbe set as dormant, usually woody cutting, and will need only a moist rooting medium.Eucalypts need the former conditions while poplar roots readily from dormant, woody cutings.Whatever the method, at the time of transplanting into containers or bare root beds, rootdevelopment should be minimal in order to minimize transplant damage because cutting rootsare often rather large and brittle. Transplandng care is also needed for seedlings and it shouldtake place when the germinant has the minimum of lateral roots. The germination conditionsshould minimize root length development and transplanting carefully timed. In order to reducethe possibility of "J" root formation, the transplanting spot should have a suitable hole and thetransplanter should hang the roots in the hole before making the seedling firm. Ideally, dry sandcan be poured into the hole to anchor the plant and after transplaning seedlings are watered to

- 66 - Annex 13Page 5 of 6

consolidate the sand. Pinching the soil around the seedlings is common practice and effectiveif carefully done by experienced labor; however, the method is open to misuse and a heavyhanded laborer can severely damage the root system. Nursery management must devise methodsof monitoring the quality of transplanting work by their labor forces.

12. Bare-Root Plants. It is generally considered that bare-root plants are cheaper thancontainerized stock because bed preparation is relatively low cost and transportation cheaper asplants are light in weight; this does not compare either survival or early growth. Losses due topoor survival are easily calculated but slow early growth will lead not only to lost producdvitybut increased costs of weeding. Nevertheless, there is an important place for bare-root seedlngsin the project, particularly in the north and for mucL of the Chinese fir, poplar, and some pinespecies plantings. For bare-root seedlings (Chinese fir, larch, pines), the most important nurserypractice will be root pruning. This is essential for controlling seedling height growth anddeveloping the optmal root system for field plaing. One feature of field plantng oftroverlooked is the fact. that root damage at this time iterrupts plant growdt and attractspathogens. Therefore, nursery managemen must ensure that roots develop in the upper 15 cmto 20 cm of their beds, so that seedlings can be lifted without root damage. This isaccomplished by undercutting; the frequency of unercutting will be controUed by the rate ofplant development (more frequently in the south than in the north). Ideally, root pruning ismechanized but this is not possible in smaller, especially hill nurseries, so hand-heldundercutting tools will be needed for the task.

i3. Containerized Plants. Plastic polybags are the main type of container used forplanting stock in China. These bags work well if the bag size, poting mixture, nurseryduration, and nursery management are correct. Unfortnately, these conditions are often not metin nurseries in China - usually bags are too large, mineral potting mixtres are unsuited foressential fibrous root development, platings are delayed due to poor weather conditions, andnursery supervision is often not sufficiently rigorous. AU these factors will cause plants tobecome either too small to bind the root plug of the potfing mixture; or too large for effectivetransportation and transplanting. The biggest problem is root distortion caused by the rootsspiralling as they try to exit the bag. Experiment results from a large nmber of species provethat this seriously retards early growth after transplanting in the field. There is the likelihoodthat a completely new root system will form around the original system, which then becomesmoribund and a target for pathogens (as observed on a number of sites in China). It isimpossible to prune such a system once planted in the field.

14. Nursery managers have noted ihese problems during NAP and embarked on a seriesof trials to develop improved containers. The outcome of years of research is the developmentof root trainers (reusable containers with vertical ribs inside the cavity that cause roots to growdownward). The bottom of the container is open (the size of this opening varies with roottrainer type) and the roots grow out without coiling. Root trainer plants are arranged on openwire-net benches above the ground so emerging roots grow into the air and quickly wither. Thephysiological effect of this is for the withered root to establish a growing point immediatelyinside the bottom of the container. This means that downward root growth will begin as soonas the seedling is planted in the field. While the initial investment costs of root trainers arehigh, they are reusable and the relative cost is reasonable.

- 67 - Annex B4Page 6 of 6

15. Since the hole at the container bottom precludes the use of mineral potting media,the root trainer has an added advantage in requiring an organic potting medium, which is idealfor development of fibrous root systems. For most species, whether conifer or broadleaf, theoptimal size of the container is no more than 150 cc to 200 cc -- and many conifers can beeffectively planted from containers with less than 100 cc capacity. Organic potting mediacoupled with relatively small cavity size has two benefits. First, the roots securely bind the plugand it is usually unnecessary to transport the containers to the field. Second, the organic pottingmedium is much lighter in weight than the usual mineral mixures, which will reducetransportation costs and be of particular benefit when planting on hilly sites. The rapid growthimmediately after transplanting is a significant benefit and likely to reduce weeding costs. Sincethe root system is well aligned, there will be less likelihood that the lower bole of the seedlingwould develop sweep or other defects. As it will be necessary to phase in root trainers overtime, priority should be given to the most valuable planting stock, particularly clones. It wouldbe advisable to plan to establish all clonal stock of eucalypts, larch, and pines, and some amountof identified Chinese fir clones in root trainers. Black locust clones would also benefit from roottainer containers.

- 68 - Annex B5Page 1 of 10

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

RESEARCH PROGRAM

1. Chinese Fir

This adaptable species will make up 18 percent of the plantation component and 9percent of the protection forest component. Research efforts to refine clonal propagationprocedures and to expedite the identification and testing of tmly superior clones are urgentlyneeded.

1.1 Research Objectives:

- To shorten mid-size timber rotations from 25 years to 20 years.- To sustain average annual increments of 10.5-12 cubic meters per hectare.- To lower establishment and management costs while improving yields.- To improve wood quality.- To insure that cultural practices promote good soil and water husbandry.

1.2 Current Problems:

- Supplies of improved seeds do not meet sowing requirements.- Number of selected clones is inadequate.- Stand density management information is needed for specific site types.- Specifications of economic rotations for specific sites need refinement.- Seedling and clonal plnting stock unmessarily variable.

1.3 Research Program:

- Management of seed production areas, seed stands, and seed orchards, both from aseed production aspect and a seed quality aspect.

- Refinement of clonal propagation methods, including the establishment andmanagement of multiplication gardens, and improved uniformity of clonal plandngstock.

- Acceleration of superior clone selection and testing; stardization of clonal testing.- Establishment, with the Fertilizer CRG, of trials to examine the reaction of tested

clones to various fertilizer regimes.- Checking, and revising as necessary, plantation cultural standards, to insure that

research results are implemented as best management pracdces.- Intensifying plaing density resarch; continuing tending and thinning trials.

- 69 - Annex B5Page 2 of 10

2. Masson Pine

Masson pine will stock 20 percent of the plantations and 11 percent of the protectionforests in FRDPP. It is extremely important for the NAP and FRDPP research andimplementation efforts to provide effective cultural and genetic models to bolster the largenational planting programs with this species. The provenance and seed orchard programs arestarting to produce verifiable gains. High research priority should be assigned to refining theutilization of the best provenances, to the design and management of clonal seed orchards, andto the testing, breeding, and reselection of orchard clones and their progenies. Heavy selectionemphasis should be put on stem form and volume growth rate.

2.1 Research Objectives:

- To improve the stem form and volume growth rate of planted trees.- To shorten mid-size timber rotations from 25 to 20 years, and pulpwood rotations

from 20 to 15 years.- To raise the mean annual increment of pit prop plantations to reach 11 to 12 cubic

meters per hectare and the mai of pulpwood plantations to reach 9.5 to 10.5 cmh.- To lower establishment and management costs while increasing yields.- To raise pulp yield per unit of dry wood weight to S0 percent.

2.2 Current problems:

- Stem form generally poor, compared to exotic pines and Chinese fir.- Supplies of improved seeds do not meet sowing requirements.- Young clonal seed orchards are slow in coming into production.- Provenance distribution and utilization need refinement.- Selection for wood quality is premature.- Cultural prescriptions for pulpwood plantations need refinement.- Seedling planting stock is unnecessarily variable.- Pine caterpillar is still uncontrolled.

2.3 Research Program:

- Management of seed production areas, seed stands, and seed orchards, both from aseed production aspect and a seed quality aspect.

- Acceleration of full-sib breeding and progeny testing of clonal orchard selections,standardized and coordinated across participating provinces.

- Continued provenance testing.- Intensifying planting density research; continuing tending and thinning trials.- Development of operational-scale clonal propagation methods.- Development of integrated pest management for pine caterpillar.- Checking, and revising as necessary, plantation cultural standards, to insure thA)t

research results are implemented as best management practices.- Extension of studies on mycorrhizal associations, in cooperation with the Mycorrhizae

CRG.

- 70 - Annex B5Page 3 of 10

3. Poplar

Poplar species will be planted on 11 percent of the plantations. The state of the artand technology of poplar culture is high, with research results from the national and NAPprograms guided by the CAF already well applied. Tested clones of exotic and indigenousspecies, as well as tested hybrids, are widely employed in commercial plantations and indeveloping agro-forestry systems.

3.1 Research Objectives:

- To increase the production clone pool; specifically, to test and select three new clonesof P. tomentosa and five clones of P. X euramencana.

- To define optimum silvicultural prescriptions which will increase average annualincrements from 15 cubic meters per hectare to 20 cmh.

- To shorten rotations to 5-6 years for pulpwood, to 12-14 years for veneer.

3.2 Current Problems:- A broMJer base of productive clones is always desirable.- More poplar species and hybrids should be utilized.- Declining ferdlity of poplar plantation sites.- Extending clonal material of P. deltoides and P. X euramericana and other species

into the more continental climates of Liaoning and Shanxi.

3.3 Research Program:

- Development of integrated pest management to control insect and disease damage inpoplar plantations.

- Selection of clones specifically for pulpwood production, integrating wood density andvolume growth.

- Checking, and revising as necessary, plantation cultural standards, to insure thatresearch results are implemented as best management practices.

- Testing of various clonal stocks and their cultural practices in Liaoning, Shanxi, andHubei.

4. Larch

Larch will be planted on 23 percent of the plantations, including extensive areas inHeiongjiang province, which was not included in NAP research efforts. Mean annualincrements are projected at about 8.5 cubic meters per hectare with these northerly species,indicating that rgorous research focused on species and provenance selection, intraspecificgenetic improvement, and planting stock quality can result in significant improvement in growthand yield. Further refinement of rooted cutting methods is key to offsetting low seed orchardproductivity and to effective utilization of interspecific hybrids. Clonal propagation, therefore,should receive high research and development priority.

- 71 - Annex BSPage 4 of 10

4.1 Research Objectives:

- To increase annual plantation productivity from 8.5 cubic meters per hectare to 10cmh.

- To extend intensive plantation management research into Heilongiang.

4.2 Current problems:

- Low and erratic productivity of larch clonal seed orchards.- Lack means of producing commercial quantities of seeds from good interspecific

hybrid crosses.- Most seed orchard clones have not been progeny tested.- Fertilization research is incomplete. Some conclusive results have not been applied.- High level of variability in planting stock is reflected in plantation variability.

4.3 Research Program:

- Commercialization of rooted cuttng methods. With research scale success in excessof 80 percent, cost effective, large scale clonal propagation is only a developmentalstep away.

- Development of hedging orchard technology.- Standardization of half-sib and full-sib progeny testing across existing clonal seed

orchards.- lItensifying planting density research; continuing tending and thinning trials.- Studying mycorrhizal associations, in cooperation with the Mycorrhizae CRG.- Exploring cultural techniques for stimulating flowering in seed orchards.- Continuing interspecific hybridization work, assuming that clonal propagation

successes will permit mass propagation of excellent hybrid combinations.- Adapting root-trainer container technology for seedling and cuttng culture.

5. Exotic Pines

Slash and loblolly pines will account for 10 percent of plantations. The startlingcontrast in growth and form between these species and Masson pine on many mid-elevation sitessuggests that provenance research, particularly with loblolly pine, should be extended. Slashpine seeds from current clonal orchards are genetically inferior to imported orchard seeds. Thegenetic bases in China for these species are still too narrow. Loblolly pine adaptability andgenerally better growth rates should be recognized more broadly.

5.1 Research Objectives:

- To improve the genetic quality of existing seed orchards.- To increase the production of genetically improved seeds.- To develop a cost effective method of clonal propagation for these species.- To develop a silvicultural prescription for a 15 year pulpwood rotation, with an anmual

increment of at least 12 cubic meters per hectare and a pulp yield per unit of dry

- 72 - Annex B5Page 5 of 10

wood weight of 55 percent.- To develop silvicultural prescriptions for construction timber rotations of 20-25 years

with an annual increment of at least 12 cubic meters per hectare.

5.2 Current Problems:

- Improved seeds of these species must be imported for the project.- Densities of seed orchards, seed stands, and seed production areas are generally too

high.- Breeding of orchard clones is not standardized and systematic.- Provenance testing of loblolly pines from Upper Coastal, Piedmont, and Southwest

regions of the United States needs emphasis.- China's genetic base for loblolly pine, in particular, needs expanding.- Selection for wood quality is premature.- Seedling planting stock is unnecarily variable.

5.3 Research Program:

- Optimizing the seed productivity and quality of seed production areas and provenanceresource stands.

- Optimizing the genetic quality and productivity of clonal seed orchards.- Monitoring disease and insect threats. Developing integrated pest management for

significant treats.- Checking, and revising as necessary, plantation cultural standards, to insure that

research results are implemented as best management practices.- Continuing tending and thinning trials.- Adapting proven nuery technologies and prcedures to improve the uniformity and

morphological and physiological quality of pine planting stock.

6. EuRa1ypis

Eucalyptus species will be planted in 6 percent of the plantations. As with the exoticpines, a wealth of knowledge and technology for the intensive cultivation of these species hasbeen developed abroad and to a significant extent, within South China. The adaptation ofexisting experience to specific site and species combinations should be the focus of this researchprogram. Emphasis will be placed on E. tereticonus, E. urophy11a, E. grandis, E.camadinsis, E. globulus, and E. urophylla X E. grndis hybrids.

6.1 Research Objectives:

- To match species and provenances, families, and clones within species to sites andsilvicultural regimes.

- To improve the genetic quality of seedig and clonal planting stock.- To develop silvicultural systems which will produce over 20 cubic meters of

pulpwood per hectare per year, in a seven year rotation.- To develop disease resistant clones.

-73 -AnneABPage ( of 10

6.2 Current Problems:

- Sites with high quality, fertile soils are limited.- Numbers of proven, tested superior clones are limited.- Seedling and clonal planting stocks are too variable; nursery operations are neither

perfected nor standardized.- Appropriate species, provenances, and clones for specific sites are not yet well

defined.- More effective disease and insect control methods are needed.

6.3. Research Program:

- Establishing seed orchards to supply genetically superior seeds for use until clonalpropagation is universal.

- Establishing breeding banks for the propagation of superior families as sources ofsuperior clones, including interspecific hybrids.

- Refinement of clonal propagation methods, including the establishment andmanagement of clonal multiplication gardens, root-trainer containerization, andimproved uniformity of clonal planting stock.

- Acceleration of superior clone selection and testing; standardization of clonal testing.- Optimizing silvicultural prescriptions for species-clone-site combinations (Consider

standardizing yields on a weight basis, i.e., tons of dry wood per hectare per year).- Developing integrated pest management for controlling serious insects and diseases.- Study potential mycorrhizal associations and identify best inoculants, in cooperation

with Mycorrhizae CRG.

7. Broadleaf Spies

While broadleafed, deciduous trees will be used on less than 5 percent of the FRDPPintensive management plantations, almost one-half of the protection forests will involvebroadleafed species alone or in combination. Experience with black locust, in particular, canbe used in the protection forest component and research methodology transferred to Quercus,Eucommia, and other genera, often of local interest.

7.1 Research Objectives:

- To develop optimum silvicultural prescriptions for black locust and Paulownia.- To identify provenances of Alnus and Lirodendron, and to relate these to potential

planting regions and sites.- To develop efficient systems for rooting cuttings of Alnus and Liriodendron.- Transfer research methodology and developed technology for broadleafed species to

the core research group in Sichuan and Hubei which will work on afforestationtechniques for multi-purpose protection forests.

- 74- Annex B5Page 7 of 10

7.2 Current Problems:

- Clonal plantation models for black locust and Paulownia are not tightly defined.- Many agro-forestry systems using broadleafed species are still in developmental

stages.- Provenance work for Alnus and Liniodendron is incomplete.- Tending prescriptions for some species are not complete.- Potential mycorrhizal associations should be examined.

7.3 Research Program:

- Establishing the best silvicultural prescriptions for black locust, Alnus, andLiriodendron.

- Selection of new species.- Continuing provenance research; extending broadleafed species applications into

Shanxi.- Refine clonal propagation methods for black locust; develop commercial scale

methods for Alnua and Liriodendron.- Develop the silvicultural potential of Schima superba.

8. Pertilization

Fertilization research must be intensified and upgraded. Careful and systematic studyof plant responses; of soil and foliar analyses; of timing, dosage, and form variables; and ofcosts will be needed to construct useful response models and good diagnostic tools. A soils andfertilization expert will assist in updating methodology and in planning further focused researchefforts. Early results will improve or verify the fertilization prescribed by the FRDPPafforestation models.

8.1. Research Objectives:

- To develop site specific ferdlizer prescriptions for the major plantation species inFRDPP.

- To develop an understanding of the relationships between growth responses and initalsite, stand, and foliar characteristics.

- To justify the cost of ferdlizer applications on the basis of demonstrated incrementalwood production.

8.2 Current Problems:

- Fertlization research lacks sufficient emphasis; needs additional scientific andfinancial support.

- Some current prescnpton recommendations are based on trials which did not includelow range dosages.

- Approach to developing response models and useful diagnostic tools which predictresponses of species/site combinations should be more systematic, less random and

- 75 - Annex BSPage 8 of 10

empirical.

8.3 Research Program:

- Evaluating responses of the six major plantation species to phosphorous, nitrogen,and/or potassium fertilization under an appropriate spectrum of soil/site conditions.

- Determining the optimum form, timing, and dosage of fertilizer applications.- Justifying the costs of fertilizer recommendations.- Organizing fertilizer research on a range-wide and long term basis, within each major

species.- Understanding the relationships between growth responses and initial site, stand, and

foliar characteristics.

9. Wood Properties

Considerable progress on establishing the wood property characteristics of plantationspecies has been made through NAP research. Development of a working microdensitometermakes work with small samples from very young trees practical. High priority should beassigned to understanding genetic and non-genetic variauion in wood density and other woodproperties in pulpwood species which can be clonally propagated, such as the eucalypts, poplars,and larches. Wood density variation in the seed-propagated pines should receive lower priority,with chemical and fiber characteristics of these species being last on the list.

9.1 Research Objectives:

- To measure and understand the non-genetic and genetic variation in wood properties,particularly wood density, of the major plantation species.

- To insure that intensively managed plantations produce wood that is of a quality wellsuited to the products derived from that wood.

- To insure that forest managers and other wood producers recognize that gross or netvolumes are not always the best measures of plantation productivity.

9.2 Current problems:

- A need to better use the tremendous literature on wood quality that is available for theeucalypts and exotic pines and larches.

- Detailed wood quality research for Masson pine is premature.- Within tree variation patterns in wood density should be examined as soon as possible.

These patterns can be affected by silvicultural regimes.

9.3 Research Program:

- Assessing within-tree variation in wood properties of Chinese fir and poplars.- Determining juvenile-mature correlations for wood properties of Chinese fir and

poplars.

- 76 - Annex B5Page 9 of 10

10. Mvcorrhizae Research

Excellent progress has been made on understanding mycorrhizal associations inplantation conifer species. More emphasis on identification and utilization of potentialmycorrhizal associations in eucalypt species is needed.

10.1 Research Objectives:

- Improve techniques for isolation, culture, and propagation of mycorrhir.Ail fungi.- Identification and selection of mycorrhizal symbionts which promote the survival and

growth of plantation species.- Commercialize the production of inoculants and their applications.- Extend mycorrhizal research to eucalypt species.

10.2 Current problems:

- Pool of effective, proven mycorrhizal strains is limited.- Methods for large scale production of inoculum are not worked out.- Needs for artificial inoculation in the field are not defined.

10.3 Research Program:

- Developing technology for beneficial mycorrhizal fungi on Larix gmelini, L. olgensis,and L. leptolepis.

- Exploring the potential for beneficial mycorrhizal fungi on Eucalyptus.- Continuing the development of Pisolithus tinctorius strains as a practical artificial

inoculant for pines.

11. Protection Forests

An eleventh core research program, centered at the Sichuan Academy of Forestryand heavily involving the provincial research resources of Sichuan and Hubei, will plan andexecute research on afforestation techniques for multiple-use protection forests.

11.1 Research Objectives:

- To develop cost-effective forestry and agro-forestry systems which can help toimprove environmental and socioeconomic conditions in the middle reaches of theYangtze River.

- To quantify the effects of these systems on soil and water regimes.

11.2 Current Problems:

- Low quality of the selected sites, for example, site index 10 meters for Masson pine.- Pressure to minimize investment per unit area.- Limited knowledge of how potential species combinations will perform and produce.

- 77 - Annex B5Page 10 of 10

- Limited knowledge of how cultural practices will affect soil erosion and run-off.

11.3 Research Program:

- Developing cost-effective forestry and agro-forestry systems for relatively poor sites.- Measuring the effects of cultural practices such as tending, thinning, and selective

harvesting on erosion and run-off.- Quantifying the biomass yields, including wood, fruit, firewood, etc., on run-off

plots.- Testing different species of grasses and shrubs for erosion control and soil

amelioration. Nepalersis is a candidatm with high poteiit al.- Testing species of local interest, e.g., Cupressus, sumac, chestnut, etc.- Identifying woody species with rooting characteristics which would stabilize

landslide-prone soils.

-78 - AnnexB6Page 1 of 3

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

EXTENSION PR,OGRAM

Introduction

1. FRDPP will continue the extension program and instittional arrangementsdeveloped under NAP. The program draws on three different sources: (a) the technical projectstndards developed by MFO and approved by IDA during appraisal, which cover seedlingsandards, nursery management, silvicultural technology, and enviromnental management; (b)the thirty-three extension messages that were developed and diseminted under NAP, whichemphasized improved planting materials, nursery management, and silvicultural technology; and(c) the recent research results of the on-going NAP research program. The main elements ofthe extension program are reviewed below.

Clonal P!anting Stock

2. The value of clonal planting stock has finally been recognized in China, which isone of the most impressive achievements of NAP. In order to achieve the ambitious clonaltargets in the project, the cloning capacity for species already in production (Chinese fir, blacklocust, eucalypts, poplar and some other broadleaf species) will have to be increased. This willbe achieved by establishment of additional cutting orchards in provinces and counties with thesespecies in their plantation programs. Under the present production situation, this could beeffectively completed by the second year of the project. The only problem that is likely to arisewill be allocation of land for the orchards. In order to make allocation of land attractive, it maybe necessary to set prices on the number of cuttings harvested or increase the cost of clonalplants.

3. Prio Spci Introduction of cloning techniques for the larches is given highpriority in the extension program because (a) there is evidence of high rooting propensity; and(b) there are available both hybrid populations and selected outstanding individual trees that canbe cloned to produce the productivity benefits that have been seen to accrue from such primaryclones. The Accelerated Planting Matrial Development Program initiated under NAP and anon-going ODA project will help identify suitable material for the cloning program. Work willconcentrate initially on multiplying stock to establish cutting orchards; consequently, it may benecessary to install green houses so that iultiplication is not held back by seasonal influences.

4. The remarkable successes with cloning different species of pines will be extremelyvaluable to future pine planting. The extension program will therefore focus on developmentof material for establishment of cutting orchards and dissemination of cloning technologies inappropriate provinces. High priority should be given to cloning of the various hybrids developedlocally or imported from QC eensland. The project is fortunate that cloning of hybrids has

- 79 - Annex B6Page 2 of 3

proved much easier than multiplication of the parent species.

5. The results of cloning Al=us sp and Liriodendron sp, which are two importantbroadleaf species in the protection forest component, have shown great promise. Since it isessential for trees to quickly cover the fragile watersheds of protection forests, clonal materialwill ensure speedy establishment and high value production. Once again, centralization ofselected trees and their multiplication for establishment of cutting orchards is a high priority.For all these clonal species, the extension staff will have to ensure that local staff understandmanagement methods for cutting orchards and the differences in handling practices betweenseedlings and clonal plants.

Improved Planting Stock

6. The extension program must ensure that the new practices in improved plantingstock development and nursery management, which are reviewed in Annex B4, are quicklyconveyed to field staff. Implementation of technologies is an on-going exercise and changesshould be made as soon as possible after net. information is authenticated. Four separate itemsare listed for priority extension, as they have demonstrated already that there will be significantproductivity gains.

7. MySfrrhiza. The central research group has found that careful inoculation with PTmycorrhiza produces rapid early growth of pine seedlings; there are indications that thisadvantage is maintained as plantations develop. Currently, the inoculum is being produced inBeijing and distributed. Extension staff should encourage development of decentralized inoculumproduction of PT and monitor gains from other mycorrhiza under study so that successful resultswill be quickly transferred to the field.

8. Root Trainers. The initial work in China supports international experience that roottrainers have a number of benefits over poly-bags. Some trainers are already being producedin a number of southern provinces and the planting stock production schedule indicates thatnearly 60 million plants will be raised in root trainers during the project. There are somecritical technical practices essential for the efficient adoption of root trainer technology, such asthe organic potting media and raised mnrsery pot-standing to permit air pruning of emergentroots. Extension staff will have to ensure that root trainers are used correctly in nurseries aswell as encourage more nurseries to adopt the root trainer technology. Priority should alwaysbe given to the most valuable planting material, such as seedlings from tried and tested progenyand, of course, clones.

9. Root Prning. Pruning the roots of bare-root planting stock has already started inthe northern nurseries and is graduatly being intrduced in the south. The objective isdevelopment of a root system that is not damaged during lifting prior to transportation to thefield and of a suitable type to commence early growth after field planting. Extension staff willhave to monitor work in the northern nurseries to ensure that the practice is properly carried out.In the southern nurseries, they will have a more difficult task since root pruning is nottraditional. Since growth is more rapid in these nurseries than in the north, more frequentpruning will be needed to develop the required root system type for transplanting. Adequate

-80 - Amex B6Page 3 of 3

supplies of the newly designed hand-held root pruning tool will have to be made available andlabor will have to be trained in its use.

10. Wood Ouality Tes=n&. The central research group has developed a densitometerthat can be used to estimate wood density of young trees. There are breeding programs indifferent stages of development all over China and also plantations being raised for fiberproduction and pit props. Extension staff should encourage extensive use of this new tool so thatlocal researchers and, more importantly, plantation managers will become aware of the woodquality of their plantings. Some routine system will have to be developed so that wood qualityas measured with the densitometer becomes a stadard measurement in plantation records.

Silvicultre Practices

II. IDA reviewed and approved at appraisal the afforestation models developed byMFO. However, several of the models conne to incorporate silvicultural treatments that donot optmize growth and economic returns according to international experience. Consequendy,the following three items have been included in the extension plan for dissemination during theproject.

12. Chemical Weedicides. The cutting of wood shrubs and control of weed growth hasbeen a major expense in larch establishment in the north. Research tials on a number ofweedicides have shown that an appropriate mixtre of "velpa" and "glyophosate" significantlywill reduce weed regrowth and, conseauently, plantadon establishment costs. This technologywill be disseminated under the project, in accordance with the project's strict environmentalmagement guidelines on the storage, handling, and use of agro-chemicals.

13. Fertize. Research trals have shown that phosphate fertilizer is more effective in

promoting early growth on plantations of Chinese fir and eucalypts than the more commonly

used blanced NPK fertdlizers. Height and collar diameter growth in treated plantationsincreased significantly following application of 25 kg of phosphate. Since this is locallyavailable and cheaper than the balanced fertlizer, extension agents will educate the afforestation

entities on these fertilization findings. Of course, the results are from relatively youngexperiments so the recorded gains may not continue. Once results from the cnmbination of soil

and foliar analyses become available, the extension staff will be in a better position to advise on

specific applications.

14. Spacing. The initial plantiag densities for many species in the project exceed

internaional standards. This is a complex issue in China because of (a) the strong market

demand for small-size wood products such as building poles and (b) the need for short-termincome generation for many afforestation entities. Since the large planting densities bring in

early returns on plantation investment, it is difficult to convince farmers to reduce their stocking

densities in order to maximize production over time. However, research in many countries with

a wide range of species has indicated that the spacing currently practiced in China is too narrow.

This brings trees into competition too early, thereby causing some growth losses in respect of

site potential. Extension workers bave to face this problem and where possible find farms wherelower planing densities could be introduced.

-81-~ ~~ A ~B7-81 -mx R

*~CHINA

FOREST RESOURCE DEVELOPMEBT ANi) PROTECTION PROJECT

TRAINING AND TECHICAL ASSISTANCE PROGRAM

Category/Topic Lenth - Number of Participants(days) Year I Year2 Year3 Year4 Total

A. Overseas Study Tour 35 35 20 15 105Nursery Techniques IS 10 10 5 5 30Planting Techiques 15 10 10 5 5 30Fertflization IS S 5 10Plant Protection 15 5 5 5 1SNaural Resource Economics 15 5 5Project Management 15 5 5 10Environmental Management 15 5 5

B. Overseas Training 20 25 5 10 60Nursery Management 90 10 5 15Silvicultural Mnagement 90 10 15 25Protection Forest Tecimology 90 5 5Economics and Information 90 5 10 15

Category/Topic Number of DaysYear I Year2 Year3 Year4 Total

C. InternatonalConsultants 65 65 70 25 225Research Advisory Group 45 45Natral Forest Management 20 20 40Protection Forest Management 20 20 40Other 25 25 25 25 100

D. Local Consultants 60 90 90 240Policy Studies 60 60 60 180Other 30 30 60

Category/Topic Number of Participants-National Provincial County Farm Total

E. Local Training 500 3,300 19,800 18,000 41,600Project Management 100 700 2,000 2,800Silviculmural Management 480 2,400 2,880Extension 12,000 12,000Research 100 480 1,200 6,000 7,780Demonstration Plantations 100 480 12,000 12,580Environmental Management 100 640 2,200 2,940Information Management 100 520 620

CHINAFOREST RESOURCE DEVELOPIENT AND PROTECTION PRWOECT

Afforestation Unit Cost by Speciet(TuuVha)

............... ............................... ............ ......................... ,,,,,,,,,,.......................................... .............................. ..............................................._

Labor Chemical Organic Guard/Stg.Site Prep. Planting Tending Sub-total Seedling FertilizeManure Pesticide Shed Other a/ Total

..............................................................................................................................................

Protection ForestI Cypress/ 551 190 418 1,159 88 0 0 6 60 130 1,453

Atder 0 0 0 0 88 0 0 0 0 0 882 Nbsson Pine/ 485 171 456 1,112 123 0 0 6 60 130 1.431

Broad-leaf Tree 0 0 0 0 0 0 0 0 0 63 Nasson Pine 551 171 561 1,283 162 0 0 6 60 130 1,6414 Chinese fir 836 190 599 1,625 180 0 0 6 60 130 2,0015 Sawtooth Oak 333 152 228 713 190 0 0 6 60 112 1,0816 Chestnut 1.036 190 1,083 2,309 1,374 473 0 23 60 280 4,5197 Pear 1.216 190 1,083 2,489 1,374 515 0 23 60 280 4,7428 Eucoam.!a 722 171 684 1,577 917 252 0 12 60 180 2,9989 Chinese Sumac/ 390 238 542 1.169 1,430 0 220 8 60 180 3,067

Uhite Birth 0 0 0 0 28 0 0 0 0 0 2810 Hills-Closure-I 124 67 95 285 68 0 0 6 60 66 485II Hills-Closure-2 0 0 95 95 0 0 0 6 60 66 227

Plantation b/1 Chinese Fir (18) 882 168 1,344 2.394 163 0 0 11 108 209 2,8842 Chinese Fir (16) 1.250 197 1,260 2,707 195 207 0 11 108 209 3.4373 Chinese Fir (14) 1,418 236 1,082 2.735 234 414 0 11 108 209 3,711 oo4 Nasson Pine (14) 1,155 189 903 2,247 180 207 0 11 108 209 2 962S Nasson Pine (16) 1,029 158 1.008 2,195 150 104 0 11 108 209 2776 16 Slash Pine (18) 746 179 1,269 2,153 175 104 0 11 108 209 2,7597 Slash Pine (16) 819 210 1,071 2.100 210 207 0 11 108 209 2.8458 Slash Pine (14) 924 263 914 2,100 263 295 0 11 108 209 2 9859 Loblolly Pine (16) 819 210 1,071 2.100 220 207 0 11 108 209 2:85510 Japanese Larch (16) 1,029 200 1,082 2.310 330 0 0 11 108 209 2,96811 Japenese Larch (14) 1,092 221 1,029 2,342 363 186 0 11 108 209 3,21912 Korean Larch (16) 1,029 200 1,082 2,310 240 0 0 11 108 209 2,87813 Korean Larch (14) 1,092 221 1,029 2,342 264 186 0 11 108 209 3.12014 Chinese Uhite Poplar (tI) 630 158 61 1,428 508 695 0 11 108 189 2 93915 Populus Simonif (12) 557 158 567 1,281 378 597 0 11 108 189 2,56416 Eucalyptus (1) 909 127 805 1,840 192 925 0 11 108 199 3,27517 Slack Locust (18) 672 126 756 1,554 688 207 0 11 108 189 2.75618 Schima Superba (II) 830 116 630 1.575 275 0 0 11 108 199 2.16819 Noso Bamboo - New (II) 1,103 945 819 2,867 1.733 718 0 11 108 209 5,6520 Noso Bamboo - Rehab. (11) 1,239 0 819 2,058 0 638 0 11 108 209 3,02421 Arundinaria (II) 924 651 882 2,457 2.160 393 0 11 108 209 5:338........ ............ ... . . . . . . . . . . . .. . . . .. . . . . . . . . .. .. . . . ... . .. . . . . . . . . . . . . . .. ... .

a/ Including costs for Management. Environment Monitoring, Inspection/Supervision. survey/design, and miscellaneous equipment.b/ Figures in parentheses denote site index.

In

ChinaForest flesouc"e 3velopment and Protection Project

Intelusively Managed Plantation ComponentDotaled Ctoat

(US$ '0003

Sease Cost Total* Including Contingoncies1999 -1996 1997 1996 1999 2000 Ttotl MS9 3996 1997 1998 29,99 2000 Total

A. Obtedial.1. Vrtilliso

VA? 2,872.30 4,266.10 4,979.18 2,170.88 - - 14,288.47 3,264.92 4,991.72 9,992.00 2,601.00 - - 16,933.24Urea 1,420.90 2,0911.995 2,394.39 1,029.28 - - 6,926.12 1,1.7 2,436.07 2,8091.43 1,272.09 - - 8,204.06ZCi, 196.60 294.39 13303 147.S9 - 9,71.86 223.44 344.42 400.78 182.76 - - I I151AG

Si~tota1 teztillser 4,489.40 6,642.41 7,0.0 3,346.04 -- 22,186.49 5,102.44 7,772.2 9,74.2 4,137.69- 26,286.71

2. Pesticlde 197.03 234.92 273.74 110.22 - - 701.91 178.48 274.89 329.42 146.11 - - 926.860smtobtal" watoriala, 4,646.44 6,077.33 7-i,990.34 1,466.26 -- 22,970.36 9,290O .9 2 8,.047.09 9,601.62 4,283.99 27,215.90

Pick-up 4,21t.77 - -- - - 4,211.77 4,786.90 -- - - .786.90

Fig*-fighting Vehicle 960.19 . - 968.18 1,093.30 - - - - 1,093.30Itrck 631.03 . - - - - 631.01 717.20 - - . 717.20Fex MachOne 33.30 - - - - - 33.10 37.62 - - - -. 37.62Zeros Machine 169.75 - - - - - 169.79 192.93 - - - - 92.93Electric typewrIter 136.99 - - - . - 136.99 199.20 - - - - - 3S.20Laze: Print.r 169.96 - - - 3189.9S6 21S.9 -- 219.49

subtotal Equ.iosut 6,331.g9 - - - - 6,334.91 7,396.60 ---- - 7,196.60C. Labow

tend Clearing 9,173.03 7,677.01 9,030.03 3,671.21 . . 29,792.07 9,060,31 8,98.78 10,866.84 4,784.43 - -30,914.36

site Prep*ration 6,773.09 13,331.64 1,1998.93 6,629.97 - -43,733.99 9,971.03 19,365.18 10,290.SS98,193.99 . -S193,20.76

forest tracks 696.93 3,043.09 1,219.93 929.29 - - 1483.23 792.10 1,220.51 1,463.26 649.16 . - 4,325.01Planting 2,716.19 4,186.94 4,77S.77 2,139.12 - - 3,798.32 3,087.09 4,899.09 9,747.21 2,619.40 - . 36,392.79tending 4,3. 13,476.23 l9.043.31 18 121.97 11,970.19 .... I,~S0.43 67~,0. 36 9,049.60 12,960.13 22,916.68 22.397.00 14,671.17 4 61457~ 82652

"atotal Lakbor 2-1,799.46 37,114.93 49,263.78 31,267.82 11,970.19 1,990.43 194,966.99 24,776.23 43,427.74 99,266.99, 36,643.96 14,671.37 4,614.57 349,418.24D. 0Other

Guard/Stolage Shed 1,941.79 2,306.48 2,687.99 3,160.69 . 7,696.55 3,752.33 2,698.79 3,234.27 1,434.50 - . 9,119.69Sutvay/Da-4iqn 618.30 929.84 1,0780.8 469.69 -- 3.088.66 702.73 1,083.31 L-2

9. 27 979.S9-

Sutotal Other...,600 3,232.321 7,6j.41 1.6 -6 - 10,789.23 2,499.06 3,!8.1.3 4,_932.94~ 2 .030.0Sk - 2795Total laovetnent Costs 34,937.94 43,226.96 61,030.93 36,360,46 11,570.1S 1,990.41 194,654.07 39,708.81 99,296.93 73,420.71 44,937.94 14,671.17 4,614.97 232,610.37

RI ecurrent CostsA. Zncrmmntal Operating Cto ts

tnformatlon P4anagaaant 97.30 342.93 213.92 189.24 92.76 21.49 712.63 44.90 166.77) 296.99 228.94 117.6? 27.94 863.12Znv3ro,ment lloitorinq 17.30 340.67 210.78 182.09 91.18 21.49 701.47 6490 164.99 291.66 226.99 119.87 27.94 891.99managesant 211.74 522.41 877.92 839.22 909.06 191.92 3,088.68 240.69 611.20 1,096.90 3,012.47 641.44 366.93 3,799.26tnspection/supervlsion 97.10- 140.67 210.76 182.05 91.38 23.49 701.47 68.90 164.99 293.66 224.99 119.67 27.94 891.99

Totl RearestCosts, 183.09 946.29 19513.00 1,366.99 791.38 216.00 9S 209.2! 1 0SS 117.24 1,824.78 1,693.40 990.80 280.74 _6.326.29I tetl 15,661__ _ .9__ _ _ _ _ _ _ _ 1 .3 , _ __ _ _ _ __ _ _ _ __ _ _ _ _ ___ S_3_2___3 .4

total ~~~~~~~~~~39,320.99) 40170.89 82,923.91 37, 72.0 i-- 12,391.93 3.766.43 199,662.33 40, 144.1 5( 6,364.17 79,241.47 46,629.30 9639 ,9.328664

ChinaFotest Rsso,srce Devolopmeani and Protect ton Project

capacity Building ComponentDetailed Cto,t

(3U1$ 1000)

Base. Cost- Totals Including Contingencies3999 3996- 1997 1998 1999 2000 total - 1999 1996 1997 1998 1999 2000 Total

1. Zaeetast Coat.A. Squilent

Ctoumter 940.90 - 5 46.90 621.96 --e 621.96soft...:. 164.07 ............... . 64.07 MA6.4 MA -.- 66

"total Zquimant 709 710.97 809.09 - - e 08.09S. tossUt.itmaol Tecl.iaal Asaistanoc

International Consultants 90.29 67.00 70.29 16.79 . 244.29 102.97 78.40 04.9 20.70 .- 266.21Local Consultento 6.2S 6.25 6.25 6.29 S 29.00 7.0i 7.31 7.92 7. 7 1 -- 29.60V

Subtotal Institutional Technictal Assistanace 98.90 73.29 76.94 23.00 . - 269.25 109.60 89.71 92.06 28.43 -- 119.88VC. Iraloi4 /ttudy towrs

Oversees Training 240.00 300.00 60.00 120.00 - - 720.00 272.77 193.03 72.20 148.31 - 44.31local Training 376.21 158.97 172.47 69.60 S 77.214 200.27 186.00 207.99 86.02 . 679.84Overse,as Study Tour 249.00 249.00 140.00 109.00 . 739.00 278.46 28.67 168.40 129.17 - 63.37

Ruta,otal training/Study Tousts 661.21 703.97 372.47 294.60 - -2,032.24 791.90 823.?0 448.24 364.09 - 2,387.93

Total tavosrmeat Coat. 3,4W66.7 777.722 -448.97 -337.6-0 - .3,012.46 1,669.22 909.41 9T4 0.3 0 192.S2 .3,13.46

Investment promotIon Cents: 91.24 91.24 91.24 93.24 - - 364.94 103.69 106.79 109.79 312.76 -- 433.00Natural Forest Manegeme't 29.0000 20 290 2 29.00 -o - 100.00 28.43 29.29 10.89 30.90 - t19.69

Ttatl fleuvoaart costs 130.60 136.93 396.47 196.43 40.21 40.23 660.92 148.44 1L60.21 169,29 19.1 A9.0 92.29 793,62

trotal 3,9-99.28 91414 09.44 414.06 40.21 4-0.21 3,671.36 1,8617.66 1,089.61 728.99 989.90 93 .03 9-2.29 4,309.08

forest kamic.r os1m at ad Prtecatin "goectmiatvipb-Ils Protectiomn locut comaweit

ma.. cost toaijcado mi osal199 1995 .. s.... (9 200 total- 195 19 97 196 19 O~... tstl

2. lkwsstsmt coso"A. Ibtswilao

f.orti(Ius: 317.23 611.10 166.26 335.70 - - 2,696.77 563.29 166.99 922.32 414.919 - 2,467.39Pesticide 1o. 37 0S.59 94.17 40.64 - - 20.317 S7.2S 94.29 113.01 10.23 -- 31S.10Organic Nants 9! 3 jj[7 HA 30.34 ,2 77.91 43.11 19.10 69.09 37.S0 - 209.79

odtatu MaIsials _421.153 -7686.66 910.99 406.77 - .)1 4-03.644 9-20.46 3I.105.91 1-02.73 -- 3.0(2.76

pickup 029.12 - - - - 629.12 711.40 - - - 71S.4Fit*-flobting Vehici. 93.49 - - - - 3.49 94.90 - 94.90Korea n.aclt,. 169.71 .- - - 169.71 192.93 -- -- 192.93Electrical Typswits: 61.93 - - - - - 63.93 93.12 - . - 93.12Later Puint,: 6.11 S."-- i 6.91

Bt.AAA tqAPI~Mt 970.00 9 - -- 970.00 1.103.37 .1131

C. tabotSite preperation 2,009.70 3.477.60 4,200.94 371.713.7S 11,407.47 2.17S.1514,060.40 1,005.09 2,1.115- S 13,624.16Conservation Wlcst 303.36 272.31 326.93 130.16 - 92.16 161.06 316.40 393.43 t60.67 - .010S.30forest tracks 0t.99 (36.79 196.60 69.79 - - 491 94.32 162.39 202.09 61.02 5 44.6)Planting 607.06 1.076.9* (.166.0 5o 42.16 3,:I6:6.11 7680.86 1.260.16 I.S76.23 670.73 . 4,206.01?.ndlnq 979.26 2,371.45 1.7014.04 3.2S3.IS1 (.77.0 462.83 12.119.44 1.112.99 :2.)7::6l 4 469.14 4.021.3* 2.25I. 60.14 (S.234.66

Subtotal Labor 4.0(2.61 7,136.315 7633177111106 462.3 29011 ,469 ,8.831.707.11 7,013.46 S.146 601.14 34,710.020.Other

Gua:dltetrago Shad 36. 21 179.31 675.66 209.6 SO- 3,931.41 438.94 677.64 6(1.34 3S17.99 .- 2.286.1lsu:v.ioosaIgn 2131.64 147.22 413.24 173.71 - - .3(.01 243.06 406.20 497.30 214.73 - (.361.31

subtotal Othe 0.1 96.3(093 463.40 3 1079.06 661.1998.6.213(.4 127 3.6(9.46total Inw.tusnt Costs S,9.63R 9-,049.14 31,736.42 6,1-77.33 1.770.00 462.63 31.'603.02 6,617.94 P0R6.7 (4.121.74 8,129.93 2.214,61 001.1 42.5(1.60nI. s*ourrent costs

A. Increment.al Operatintg Coot&lnfor.atlon Nanagasst 11.64 36.11 19.73 11.22 26.20 6.39 147.71 17.78 41.11 71.06 61.30 33.22 e.31 239.S7Envtronawnt Nonltoring 38.61 43.60 66.98 18.22 30.64 7.19 22S.30 20.47 11.32 60.60 71.91 38.66 9.66 273.06Nanagsant 7.1 19.6.9 329.73 301.10 100.19 55.20 1,34.6.0 67.24 227.60 396.76 377.06 216.19 71.74 1.397.24inspection/Su.pervision 36.02 40.24 61.98 11.37 30.01 7.19 213.24 39.23 47.09 74.16 66.43 36.io 9.06 216.271

Total 0V can4t C"ost (24.44 -317.34 (18.36 469.91 273.47 767 (.702.30 (43.70 371.32 623.62 180.76 346.77 99.76 2163rota" 0,121.27 9,366.6 (8 2.214.90 7,047.23 2,001.16 1,39.16 P7.1so-.12 6,961.69 1090.0 34,767.16 6,0.92,001.43 701.31 4268,61.41 00

Forest esource ChinaFort psouct,osvslcpssnt and protection Projoet

Planting Stock Onvalopsant ComponentDetailed Cwost

"so. Coat totals IncludI2o continoncs1991 1996 3L9-9-7 196 19 200 ttl 19 (97 (9 199 00 toa

I. Sawa.tsant CostaA. Materials

1. adSlash fine 316.16 61.33 34.61 - 232.36 132.04 t 91.1 41.4 - - 249.14loblloit Pi". 308.02 76.17 32.01 - 237.64 123,60 69.33 3'9.29 - - 212.10Caribsan Pipe 24.06 37.40 7.46 - - - 49.71 26.25 20.36 9.97 - S 7.16tocalyptus 16.71 13.10 1.63 37.41 21.20 (5.32 6.71 - 43.34

sutotal 66.ds 266.10 167.99 9017 - 37.32 _301.23 2319.97 -96.96 - -- 622.16S. SeedIngs

349 1,769.26 3.030.06 3,166.6313,S10.49 - .9,910.44 2.016.66 3,146.16 4,294.77 1,914.16s 11,606.17(NP 3.934.62 6.(29.19 6.961.32 3.136.20 - -20,161.33 j.(l1.90 7,171.7 0 37 1 _3,S70 - - 23.e96.96

Jkltotal Seedlings 1.703.88 9,160.06 30,130.11 4,737.60 - 30,1(1.77 6.162.751(0.719.O9 12,672.10 S.030.60 - 35,703,533. Pesticide - 172.43 172.43 4.1 - 201.74 213.09 - 414.93

scEot1 (tatetiaJL. 1,797.44 EP.124 30,6(0.72 4,699.10 - 3..19,93.726.77. 11,139.79 1,6.60036 6701

Pick-up 1,423.91 - - - - 1,423.91 (.610.35 - 1,610.11Eruck 631.03 . - - 0 31.03 737.20 - -717.20

Tractor - (.013.79 . -1,031 9 -1,136.23 - - 1,366.23Spdink(r 3130.34 - . - 310.34 327-2 S - 32.72

Croaks: 43.77 . - - - - 43.71 49.74 - - - - - 49.74~~~~~~~~~~~~~~~~~~~~~~~~~~~- S2Plastic Shalte: 326.90 - . 26.9 PS 144.22 - 44.22Chemical Powger 6.10S-o- - 910 96 9.6Chemical Spray.: 29.24 . 924 3.3- - 31Root Cuttar 12.40 - . - - 32.40 3.0.2 . - - 36.62 Seeding Nachina 1.01 - .03 1.70 S .70BeddIng Iaetdne 3312 . .2 13.12 3114 - - - - 11.4Seedling Litter 0.91 - :- - .9 (.03 1 .03Notor Tticycls 12.10 1 2.14 (3.80 - 13.00Maat.: Pop. 1.4S - . 13.41 31.14 3S.74Other 36.S1 - - 36.11 41.62 - - -- . 43.62

Sthtotal tqoivmnt 2,707.47 (.013.79 - -- 3,721.26 .1.6(162 4.203.41total 6,7.030,34.21 10,630.72 4C.6*0.20 - 4744 .913 2160 12,769.06 6,043.69-rl(019

"eoples Repubtic of Chine62r Caime bute Reseve eneeat toject

sojoeet C"o 8lrasp

I I Total____ ____ ____ __ trot ipu Same

Local fuen r Tat)l Loeal roI e I otol pcheoqe costs

a. cepoamt srte: Itsegtbe.7q rSoteleatn sCltmt39(v01t IUqe@t. a otgengastlonAt, U l Uis Plnnnlog 2,061.906 2.309.20, 6,113.2S4 490,011 StS,539 1,013,09 S4 6tap elotl field Iawel froteetlee aStIeF 21,021,023 5,912,21 26.939.316 3,656,614 l,02,232 4,69s,1DS 22 210e.elaplmg Com.ommiv Pctticipal ice *0,4,, 110 .. 2JU!dq I t-ILM 1.500.551 $13.2pI JL

0 1S.A

2 220 12

subtotal C_mngUst me: Stglhemlng ?trotectilm sieus 22.89.099 12.329.0"a 05640.se6 S.655,4o96 2,379I,0174i 714,31 20 ,42B. Compowat %wooetatal ragest Naaenen 10.142.541 109.9s5 10.9123.06 1.164,096 122.916 1,69e,00l I Itc. coma Threat *e eloplng lmtslatteml capaslOf

1. sg tleatietl Osotettoma tIne 1,699.2S0 316,91 2.11S.610 29S,S21 55,024 3SO,551 16 2

, national @ 4LI43, __2d3-S!L? 5524.% $ 1|,20 Si4 41-S^99 _1,1146,03 32 t--4Subtotal Oegeteatsalma sevetopneel5 .0 2,6290 2.691.4S 8,543.096 1.01611)l -469.12) 1.401,224 22 99. 3,ambs"l.s Shllis

sr"ervie tre*elnt 0.1241723 4,604,620 I,Sl9,324t 1.414,134 014,111 2.229,451 37 32.hoject "mageemot *.212. 49 1.652.41 4,924.690 569.139 201.°32 056.460 24 _

Subletal compoweat liesee Savaloping gmtltuaAalt capacify 11.26.9to1 9,024.219 26.284,129 2.999.904 1.511.166 4.511.131 24 21O. Compnent feat: Seoloplng Metature ReS* t. Umtgaeut latoettion sytpe

I. Date emoegeent 1.100.134 2,509,S19 1.169,6e7 205,241 010,353 655,594 69 42. ilCen rntoe. VWs blotino g ntc5.410 %_ 1.12 _.12S.S1o 960.423 6.e 9239 1206S.3 9 6

Subtotal Componenut froats oavel.plng Uautto Reserve Ramangament Znterseettee slate" 6,140.926 2,3.46,091 9,09S5,51 -1. 112,614i 541.205 1.120.960 22 1e. Ceepenent rtos: SuppoetIng "tows s esoir retmest eb

Ise re RSearchd tProgrms 1.440.0 1 15051.90 1.945.402 2se.449 *7.,9S 220.345 26 2Reseetch - Smell Ceat e "t'g-o 2.313,S6 . 20tJ! 2,521.121 4e2 15O 26,31 419'!d a I

Subtotal Co _pone _t fiest sutpplimO notets Reset.. rsseeh e153.6ii 11.II oi 66,0l - 652i U0 4 et2 716,015 16 STta esisiC comt 10,414,00i 26.192.1I9 -90.600.41 U12246 2 4,5.SS,42 16.001.40s 21i I0

php,lcdl Coatingencles 614,206 49.42 661.069 106.050 0.606 MAS.4S6 1 IRlice Cent ingeucis. 2 902.044 2,2.1 232~4tO?I 11,214.51 420.9305,95 j ~92 492? 4 vtoetal 00JCt Tstes ofiffi ' - 20'.662.416 1230,Sid6, i1121,404 4.914,949 2,712.433 22 la!

CltinoForest Oosrco Developeant and Rrotectton Pro5-ct

Rsea*rch and Technology trans.far COceeatvotailla coot.

(Us$ '800)

Sve. cost Totals including contingencies1995 1996 1997 1998 19t9 20e Total 3995 It96 3997 3990 199 2000 Total

n. R t CstA. saleare.

Resarch ISI.72 151.72 1SI.72 1Sl.72 151.72 - 710.62 172.44 177.S3 162.19 107.52 192.19 - 912.47ateslon 3214.71 134.71 34.71 134.71 314.71 - 1,673.56 300.42 191.64 402.80 413.67 421.42 - 2.012.91

P9lot Plsatlon 9.20 9.20 9.20 9.20 9.20 45.98 10.41 10.76 t1.07 11.36 11.66 - 55.30Conswrvetlon trials IS 1. .1lS l.lS 1.15 - 5.7 1.31 1.34 1.38 1.12 t.l6 - 6.91

Subtow SaslaRI 496.7e 496.70 496.78 496.70 496.78 - 2,403.91 164.62 581.28 197.81 613.91 629.91 - 2967.61D. taeret.al eentl CDt t 912

Soseaclb tSt.72 151.72 151.72 111.72 I1.72 - 75.62 172.44 177.11 102.59 187.52 192.19 - 912.47stmnslom 62.07 92.07 82.07 02.07 92.07 410.14 93.20 96.01 98.76 101.43 103.07 - 493.56

90lot plantation 1.4 1.04 1.04 1.84 1.84 - 9.20 2.09 2.15 2.21 2.27 2.13 - 11.06 S.Cons. w ton trials 0.2 0.21 8.21 0.23 0.23 - 1.15 0.26 0.27 0.28 0.28 0.29 - 1.38

1 t tl t Coat 211.86 215.06 211.06 211.06 231.86 - 1.179.11 268.07 275.98 283.03 291.10S 299.08 - 3.410.4712. 2.64 712.64 .6 72.64 7. -6.661.22 *832.69 1S7.26 861.67 901.46 929s.01 4,486.10

ChinaFoett Rescutea Dwuvelopent nd Protection Project

"eojant qmmts by tlao

Bse" Cst I', '002BaeCot(18 01991 _t§96 199 1999 199 2000 total 199S 196 197 1999 1999 2000 TotalProtection Porests S 209.91 01.491.0S 106.616.79 61,310.93 17,840.S3 4,694.39 321,2S2.30 6,12S.27 9,366.89 12,214.60 7,047.23 2,051.56 539.50 37,36S.322 Intensive Piartatleo 307,292.61 419,086.37 S43,9§4.72 320,242.36 107,118.29 32,767.96 1,730.902 3S,320.99 49,170.91 62,S23.53 37,729.01 12,351.53 3,7t6.43 199,962.314. plantirn Stack Dlvlqgant 75.SIS.15 91,646.01 92,113.29 42,543.09 - - 302,020.34 0,679.90 10,S34.2S 10,610.72 4,800.10 - _ 34,714.995. Resreb and technology TranSter 6,374.00 6.374.00 6,174.00 6,374.00 6,374.00 - 31,870.00 732.64 732.64 732.64 732.64 732.64 - 3,663.22S. Capacitg building 13.913.73 7.913.03 S,267.31 4.124.36 350.00 310.00 31,958.41 I.S99.20 914.14 60S.44 474.06 _ 40.23 40.23 3.673.30soea rA 06amS 4S613,5.2 606,913.27 754,126.11 442,S99.94 132,030-81 37,012.34 2,429,903 52,459.00 69,710.77 06,727.14 50,873.04 19,175.96 4,346.29 279,299.24Ptysical Contingecies 54,906.90 72,913.21 90,771.53 13,247.70 11,894.36 4,149.1- 292,336.01 6,311.13 8,387.73 10,433.9? 6,120.43 1,625.79 922.89 33.601.93

PsticeCntingao

Local 19,450.96 76,499.71 161,049.64 134,343.00 S6,830.69 19,937.40 464,114.S7 1,775.97 9,792.96 10,S11.00 15,441.73 6,533.18 2,291.66 93,346.50Foreign 2,t35.09 4.751.49 8.298.55 9,409.36 171.04 91.99 21,117.S1 279.90 546.11 913.96 621.77 19.66 S.97 2.427.30Ss*toetl Inflatiou 17,6I6.05 01,250.21 169,144.21 139,752.44 17,009.72 19,999.46 45,232.06 2,055.07 9,339.10 19.464.95 T6,063.1S 6,512.64 2,297.64 9S,773.8Devaluation S9122.09 9,934.53 16,266.45 10,474.22 331.01 101.96 41,031.11 -1,203.71 -5,969.44 -12,257.61 -10,162.9S -4.311.19 -1.117.97 -31,341.67Subtotal Ptice Coontitlncies 23 009.14 90 794.74 185 610.66 150,226.67 57.341.57 20,091.41 527,063.19 952.15 3,470.66 7,207.24 S,8S0.6S 2,241.66 779.77 20,432.14etxl C0062 53t4,300.22 770,111.22 1,030.912 646,069.99 205,256.74 62,452.09 3,249.303 19,621.36 91,517.15 104,368.35 62,074.13 19,243.41 5,6B4.90 333,133.31

or eign IsacSnge 17S,494.68 121,217.37 136,438.07 69,309.40 1,800.12 470.40 s03,n30.20 19,193.06 12,837.11 13,912.83 6,647.73 160.77 43.20 93,092.77

00

- 87 - Anex C4Page 1 of 2

CgINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECTDISBURSEMENT AND PROCUREMENT BY INVESTMENT CATEGORY

TOTAL --IDA DISB. - -

UNIT PRICE TOTAL VALUE 121 RATE VALUE PROCURE.CATeGORY (YUAN) (11 QUANMTITY (tUSD'000) (%) (US.D'000) METHOD t31

1. EQUIPMENT 13,610 13,610

Vehicles 10,928 100% 10,928Pick-Up Trucks (1.5 ton) 130,400 418 7,121 7,121 ICBFire-Fighting vehicles 181,600 50 1,186 1,186 ICBTrucks (5-10 ton) 183,000 60 1,434 1,434 ICBTractors 42,000 210 1,186 1,186 LCB

Office Equipment 1,702 100l 1,702Computers/Software 47,880 130 808 808 ICBPhotocopying Machines 92,300 32 386 386 ICETypewriters 29,700 64 248 248 SPrinters 26,600 64 222 222 SFax Machines 28,800 10 38 38 S

Nursery Equipment 742 100% 742Sprinklers 18,000 150 353 353 LCBPlastic Sheds 13,800 80 144 144 SOther Miscellaneous .. .. 245 24S S

Investment Center Equipment 238 238Miscellaneous .. .. 238 100% 238 S

2. Materials 31,265 29,387

Seeds *- 6,911 kg 622 100% 622 DPFertilizer 28,984 27,105

Calcium-Phosphate 1,051 mt 17,343 mt 2,343 100% 2,343 LCBDAP 2,070 mt 60,053 mt 15,949 100l 15,949 ICBKCL 1,354 mt 6,244 mt 1,085 100% 1,085 ICBUrea 1,755 mt 34,335 mt 7,728 100t 7,728 ICB

Organic Manure .. .. 210 0t 0Local Distribution Costs .. .. 1,669 0o 0

Pesticides .. .. 1,659 100t 1,659 ICE

3. Civil Works 272,301 149,766

Afforestation Labor .. .. 220,168 55% 121,093 OTHGuard/Storage Sheds 360 sm 26,743 am 11,408 55W 6,274 OTHSurvey and Design .. .. 5,021 55% 2,762 OTHSeedlings ,, ,. 35,704 55t 19,637 OTH

4. Technical Assistance 2,703 2,024

International Consultants 283,330 /mo. 8 Mon. 286 100% 286 OTHLocal Cc,nsultants 54,375 /Mo. 4 mos. 30 lOOt 30 OTHOverseas Training 34,800 /mo. 100 noO. 844 100% 844 OTHLocal Training 121 /per. 41,600 pars. 680 O% 0Overseas Study Tours 121,800 /a*. 53 mos. 863 100t 863 OTH

Annex C4-88 - Page 2 of 2

TOTAL --IDA DISB.--

UNIT PRICE TOTAL VALUE [2] RATE VALUE PROCURE.CATEGORY (YUAN) tl] QUANTITY (USD'000) (%) (USD'OOO) METHOD [3]

5. Other 13,454 5,215

Research Services .. .. 426 100% 426 OTHIndirect Costs 12,910 4,671

Salaries .. .. 4,417 0% 0other (4] .. 8,492 55* 4,671 OTH

Natural Forest Management .. 119 100l 119 OTH

TOTAL 333,333 200,000

NOTES:

[1] Unit values exclude physical and price contingencies.

(2] Total values include physical and price contingencies.

[3] ICB - International Competitive Bidding, LCB - Local Competitive Bidding, S a Shopping,DP - Direct Procurement, and OTH = Other.

[4] Other indirect costs includes extension, supervision, and information management.

- 89 - Annex C5

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

DISBURSEMENT SCHEDULE FOR AFFORESTATION ESTABLISHMENT COSTS

(Yuan Per Hectare)

SiteTree Species Seedling Preparation Planting Tending Other Total

A. PlantationsChinese Fir 216 1,297 214 1,180 120 3,027Masson Pine 166 1,105 177 945 120 2,513Slash Pine 151 864 234 1,008 120 2,377Loblolly Pine 147 819 210 1,071 120 2,367Japanese Larch 348 1,067 213 1,050 120 2,798Korean Larch 256 1,067 213 1,050 120 2,706Chinese Poplar 508 630 158 641 100 2,037Populus Simonii 378 557 158 567 100 1,760Eucalyptus 118 909 127 805 110 2,069Black Locust 688 672 126 756 100 2,342Schima Superba 275 830 116 630 110 1,961Bamboo-New 1,733 1,103 945 819 120 4,720Bamboo-Rehab. 0 1,240 0 819 120 2,179Arundinaria 2,152 924 651 882 120 4,729

B. Protection ForestsConifer/Broadleaf 196 518 181 437 100 1,432Masson Pine 174 551 171 561 100 1,557Chinese Fir 196 836 190 599 100 1,921Sawtooth Oak 209 333 152 228 100 1,022Chestnut 1,507 1,036 190 1,083 250 4,066Pear 1,507 1,217 190 1,083 250 4,247Eucommia 1.008 722 171 684 150 2,735Sumac 1,604 390 238 542 150 2,924Hill-Replanting 66 124 67 95 50 402Hill-No Replanting 0 0 0 95 50 145

Note: Afforestation establishment costs for disbursement purposes exclude expenses related tofertilizer, pesticides, guard sheds, equipment, research, training, study tours, and technicalassistance.

- 90 -

CHIFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

Estimated Disbursement Schedule

-- _--_.--_-----------------------_----------------------__-_-_-_---_____-----__---.

Project Disbursements Ch4na Diab.IDA -------<--------------------------- Profile a/

Fiscal Year/ Semestral Cumulative Cumulative ----------------

Semester - ($ Million) ----- Yr/Semester %

1995 b/ Year 1

First (Jul-Dec, 1994) 12 12 6 First 0

Second (Jan-June, 19s5) 12 24 -. Second 30

1996 Year 2

First (Jul-Dec, 1995) 16 40 20 First 38

Sec(.nd (Jan-June, 1996) 16 56 28 Second 46

1997 Year 3

First (Jul-Dec, 1996) 20 76 38 First 54

Second (Jan-June, 1997) 24 100 50 Second 66

1998 Year 4

First (Jul-Dec, 1997) 24 124 62 First 70

Second (Jan-June, 1998) 26 150 75 Second 82

1999 Year 5

First (Jul-Dec, 1998) 14 164 82 First 86

Seor-id (Jan-June, 1999) 14 178 89 Second 94

2000 Year 6

First (Jul-Dec, 1999) 10 188 94 First 96

Second (Jan-June, 2000) 8 196 98 Second 98

2001 Year 7

First (Jul-Dec, 2000) 4 200 100 First 100

a/ Disbursement nrofile for China - Agriculture Sector. From the World Bank Operations

Policy Department, July 27, 1993.

bi Includes retroactive financing of $11 million tz cover expenditures incurred between

September 1, 1993 and not more than one year before the signing of tha Development Credit

Agreement.

Completion Date: December 31, 2000

Closing Date: December 31, 2001

- 91 - Page 1 of 3

FOREST RESOVRCE DEVELOPMENT AND PROTECTION PROJECT

REY MONZTORZNG INDIcATops

Ycar I Year 2 ---- p Year 6

Indicators Unit Plinned Actual Planned Actual ---- > Plamed Actual

A. Plantation Program

Establishment Amount

Chinese Fir ha

Masson Pine ha

Loblolly Pine ha

Slash Pine ha

Larch ha

Other Conifer ha

Poplar ha

Eucalyptus ha

Black Locust ha

Other Broadleaf ha

Bamboo-New ha

Bamboo-Rehabilitation ha

Average Mortality Rate

Average Acceptance Rate

B. Protection Forest Program

Establishment Amount

Masson Pine ha

Chestnut ha

Chinese Fir ha

Sawtooth Oak ha

Pear ha

Eucommia ha

Mixed Masson Pine/Oak ha

Mixed Cypress/Alder ha

Mixea Sumac/Birch ha

Other Species ha

Hill Closure-Replanting ha

Hill Closure-No Replanting ha

Average Mortality Rate

Average Acceptance Rate

C. Capacity Building Program

Overseas Study Tours no.

Overseas Training no.

Local Training no.

international Consultants days

Local Consultants days

AMencD192 - Page 2 of 3

Year 1 Year 2 ---- Year 6

Indicators Unit Planned Actual Planned Actual ----. Planned Actual

… ---- ------- _ _ __ ______ -------

D. Planting Material Program

Seedlin.gs Production Amount

Bare-Root no.

Clonal no.

Chinese Fir no.

Larch no.

Poplar no.

Eucalyptus no.

Other no.

Root Trainers no.

Poly-Bags no.

Culling Rates t

Bare-Root f

Clcnal c

Root Trainers f

Poly-Bags f

E. Research and Extension Program_____________________________

Pilot Plantation Estaklisbment ha

F. Financing

Project Costs

Plantation Component yuan

Protection Forest Component yuan

Planting Material Component yuan

Research and Ext. Component yuan

Capacity Building Component yuan

IDA Financing Provided y.an

Local Financing Provided

Province yuan

Prefecture/Municipality yuan

County yuan

Beneficaries Yuan

G. Procurement

Quantities

Fertilizer

CMP Mtt

KCL mt

DAP mt

Urea Mt

Imported Seeds kg

Pesticides mt

AnuLD1-93 - Page 3 of 3

Year 1 Year 2 ---- > Year findicators Unit Planned Actual Planned Actual -P--- Planned Actual

G. Procurement Continued______._..___________________

Quantities

Vehicles

Pick-Up Trucks no.

Fire Vehicles no.

Trucks no.

Tractors no.

Unit Costs

Fertilizer

CMP yuan

KCL yuanDAP YUa

Urea yuan

Vehicles

Pick-Up Trucks yuan

Fire Vehicles yuan

Trucks yuan

Tractors yuan

E. Economic Data

Avg. Domestic Inflation Rate t

US$/Yuan Exchange Rate

US$/SDR Exchange Rate

Average Labor Wage Rate yuan

Timber Prices

Chinese Fir-Large Diameter Y/cum

Chinese Fir-Medium Diameter Y/cum

Chinese Fir-Small Diameter Y/cum

Masson Pine-Pulpwood Y/ cu

Masson Pine-Pitprops Y/cum

Slash Pine- Medium Diameter Y/cum

Slash Pine-Pitprops Y/cum

Slash Pine-Pulpwood Y/cum

Loblolly Pine-Pitprops Y/cum

Larch-Pitprops Y/cum

Larch-Pulpwood Y/cum

Poplar-Large Diameter Y/cum

Poplar-Pulpwood Y/cum

Eucalyptus-Pulpwood Y/cum

Black Lscust-Pitprops Y/cum

AmeX294 - Page 1 of 2

FOREST RESOURCE DEVELOZPNT AMD PROTECTION FORMST PROJECS

AFFORESTATION MNIT COSTS MONITORING TABL$

(Yuan Per Hectare)

Site Conserr.Total Seedling Preparation Planting Tending Works Otber

A. PLANTATIONS

Chinese Fir

Planned

Actual

Masson Pine

Planned

Actual

Loblolly Pine

Planned

ACtual

Slash Pin&

Planned

Actual

Larch

Planned

Actual

Poplar

Planned

Actual

EuCalyptus

Planned

Actual

Black Locust

Planned

Actual

Bamboo-New

Planned

Actual

Bamboo-Rehabilitation.

Planned

Actual

B. PROTECTION FORESTS__________________

Masson Pine

Planned

Actual

Chestnut

Planned

Actual

Chinese Fir

Planned

Actual

Annex D2- 95 ~ Page 2 of 2

',:A

FOREST RESOURCE DEVELOPMENT AND PROTECTZON FOREST PROJECT

AFFORESTATION MNT COSTS MONITORING TABLE

(Yuan Per Hectare)

Site Conserv.

Total Seedling Preparation Planting '.ending Works Otber

B. PROTECTION FORESSS CCNT.

Sawtooth Oak

Planned

Actual

Pear

Planned

Actual

Eucommia

Planned

Actual

cypress/Alder

Planned

Actual

Sumac/Birch

Planned

Actual

Hill Closure-Replanting

Planned

Actual

ill Closure-No Replanting

Planned

Actual

- 96 - Annex D3

CHINA

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

IDA SUPERVISION PLAN

Dates Activity Expected Skill Staff InputRequirement (Sw)

8/94 Project Launch Workshop: Review procurement, Procurement, financial management 2financial management, monitoring and evaluation, specialist.and auditing requirements for project.

2/95 Supervision Mission: Review plans for first-year Economist, forester, planting material 8irnplementation, particularly for plantations, specialist, environmental managementprotection forests, and planting materials. Mc&itor specialist.project maragement systems, particularlyprocurement, disbursement, and accounting.

4/95 Supervision Mission: Review plans for first-year Biologist, sociologist, training 10implementation of nature reserves component. specialist, data management specialist,Review project management systems for GEF grant. economist.

7/95 Supervision Mission: Review first-year Economist, forester, planting material 8performance, particularly for research, extension, specialist, research specialist.nurseries, and capacity building. Monitor projectmanagement systems.

10/95 Supervision Mission: Review implementation of Biologist, sociologist, training 10nature reserves component and GEF management specialist, data management specialist,systems. economist.

1/96 Supervision Mission: Review second-year Economist, forester, planting material 12implementation plans, particularly for nature specialist, environmental managementreserves, plantations, and protection forests. specialist, biologist, sociologistMonitor project management systems.

7/96 Supervision Mission: Review second-year Economist, forester, planting material 12performance, particularly for nature reserves, specialist, research specialist,research, extension, nurseries, and capacity biologist, sociologistbuilding. Monitor project management systems.

1/97 Suvervision Mission: Review third-year Economist, forester, planting material 12implementation plans, particularly for GEF, specialist, environmental managementplantations, and protection forests. Monitor project specialist, biologist, sociologistmanagement systems.

9/97 Mid-Term Review: Review past performance of all Economist, forester, planting material 14components and adjust future implementation plans specialist, environmental managementas necessary. Monitor project management systems. specialist, research specialist,

biologist, sociologist

1998- SuNervision Mission: Based on needs of project but To be determined according to the2000 at least one supervision a year. ;,ast mission will needs of the project.

discuss PCR.

CHINAFOREST RESCURCE DEVELOPMET AN PROTECrioN PRoJEcT

Production Yield by Species

",, ............................... ...................... .................................. ......... .............. I..................... ..................... .......................................... ... .... ... ..

Thiming 1 Thiming 2 Harvesting 11....... ........... .. .... ................................ ....................

Year Titber Fuehiood Year Titber Fuetwood Year Timber fuelwood Resin Other 2/(.3/ha) (torvha) (03/ha) (tonvha) (.3/ha) (ton/ha) (kg/ha) (kg/ha)

................................................................................... .. ....................................................................................................................................... . .... . ... .....

Protection ForestI Cypress/Alder 13 3.50 19 8.04 6.20 25 29.66 13.402 Hasson PinleJ 13 7.50 19 8.30 5.30 25 34.26 11.40

Broad-leaf Tree3 Masson Pine 13 3.70 19 15.96 6.40 25 40.52 10.004 Chinese fir 13 2.51 10.30 18 13.78 6.40 25 41.81 10.405 Sawtooth Oak 14 5.70 20 3.96 12.60 25 20.52 18.906 Chestnut 2,5007 Pear 12,0008 EucoQmia (Bark) 3739 Chinese Sumac

Gutinut 16510 Hills-Closure-I 20 5.20 25 8.00 10.00

Without Project Yield 1.00 3.0011 Hills-Closure-2 20 5.70 25 10.00 4.00

Uithout Project Yield 1.00 2.00PlantationI Chinese Fir (18) 11 8.85 3.50 14 12.78 4.30 30 379.80 11.502 Chinese fir (16) 10 8.49 3.40 14 12.06 4.00 20 164.30 7.703 Chinese fir (14) 11 4.15 1.50 14 13.32 4.10 20 143.10 9.604 Hasson Pine (14) 10 5.00 1.90 18 125.20 7.90 1,0905 Hasson Pine (16) 10 3.83 2.00 15 8.20 2.70 20 164.00 9.40 1,2806 Slash Pine (18) 10 3.64 2.00 14 14.12 5.40 30 247.60 7.50 3,7807 Slash Pine (16) 10 3.50 2.00 14 10.20 3.00 20 166.30 9.50 2:5908 Slash Pine (14) 10 4.50 1.70 is 141.60 9.00 2.3009 Loblolly Pfne (16) 10 3.80 1.40 14 11.20 3.60 20 183.00 12.00 1,30010 Japanese Larch (16) 10 4.00 1.60 15 11.40 3.50 Z, 139.00 6.0011 Japanese Larch (14) 10 4.70 1.80 18 105.50 11.0012 Korean Larch (16) 10 3.70 1.30 15 9.50 3.00 22 131.30 9.0013 Korean Larch (14) 10 2.00 0.70 18 99.50 10.0014 Chinese White Poplar (11) 15 124.70 6.4015 Populus Simonif (12) 10 93.70 4.5016 Eucalyptus (11) 7 77.00 4.3017 Black Locust (18) 7 4.00 1.70 15 64.00 4.0018 Schfea Superba (11) 20 124.90 20.6019 Hoso - New (ii)

aiwboo Wood 8.S4ASamboo Sheot 2,000

20 Noso - xehab. (11)Bamboo Wood 6,835Bamboo Shoot 1 450

Without Prolect YieldBamboo Wood 2,0508mbeoo Shoot 450

2t Arundinaria (II)Samboo Wood 13,000Bamboo Shoot 400

........ ............. _. ............. ......... ................. ........ .............. ... ... .... ...... .... ... ........... ..................... ... ... .. .............. .............. ............... ................. ....

Note: 1/ Harvestine of proteciton forests constitutes first regeneration cutting, covering 30% of stand.2/ Yield calcutated at full development.

CHINAFOREST RESOURCE DEVELOPENET AND PROTECTIOti PROJECT

Total Project Output by Volume and Value a/

.... ........... ...... ..................... ............................. .......... ................................... ......................................................................... .. ............ ..... .... ....................... ... ..

without Project With Project Total Incremental........ .. ............ ........................................................................ ... .................................................................................. ...... ............................... ...... .........

Timber Fuetwood Other b/ TiMber Fuetwood Other b/ Timber Fuelwood Other b/('000 N3)(O000 O I 000 Ton)(O000 Y) ('000 1) ('000 M3) (000 Y) ('000 Ton) ('000 Y) ('000 O) ('000 13) ('000 Y) ('000 Ton)(*000 Y) ('000 y)

...................................................................... ................................................... .................................................Protection Forest 2,400 100,800 400 22,000 0 34,211 3,372,981 4,337 238,538 3.995,550 31,811 3,267,844 3,937 216,538 3.995.5501 Cypress/ 2,188 264,864 347 19,058 2,188 264,864 347 19,058 0

Alder 0 0 0 0 0 0 0 02 Hasson Pine/ 2,847 346,104 407 22,361 2,847 346,104 407 22.361 0

Broad-leaf Tree 0 0 0 0 0 0 0 0 03 tasson Pine 6,191 859,692 643 35,376 * 6,191 859,692 643 35,376 04 Chinese Fir 5,245 895,241 678 37,263 5,245 895,241 678 37,263 05 Sautooth Oak 3,311 238,675 818 45,012 3,311 238,(75 818 45M012 06 Chestnut 0 0 0 0 2,684,240 0 0 0 0 2,684,2407 Pear 0 0 0 0 398,97v. 0 0 0 0 398,9758 Eucoamfa 48 5,481 61 3,350 513,755 48 5,481 61 3,350 513,7559 Chinese Sumac/ 5,1 24,814 0 0 398,580 591 24,814 0 0 398.580

White Birth 0 0 0 0 0 0 0 0 010 Hills-Closure-I 900 37,800 160 8,800 5,911 292,414 608 33,440 5 011 254,614 448 24,640 011 Nilis-Closure-2 1,500 63,000 240 13,200 7,880 441,360 776 42,680 6,380 378,360 536 29,480 0

Plantation 0 0 0 0 1,406,628 82,563 40,463,227 6,814 374,795 5,045,570 82,563 40,463,227 6,814 374 795 3,638,9421 Chinese Fir t18) 4,376 3,150,026 210 11,570 4,376 3,150,026 210 11 570 02 Chinese Fir (16) 8,078 4,940,495 660 36,293 8,078 4,940,49ff 660 36,293 03 Chinese Fir (14) 8,767 5,027,126 830 45,646 8,767 5,027,726 830 45,646 0 'D

4 Nasson Pine (14) 9,453 3,936,111 711 39,131 102,874 9,453 3,936,111 711 39,131 102,874 °°S Hasson Pine (16) ".,55S 3,805,272 685 37,689 80,870 8,555 3,805,27 685 37,689 80,8706 Slash Pine (18) M3 405,835 46 2,540 15,233 823 405,835 46 2,540 15,2337 Slash Pine (16) 2,178 983,267 175 9,650 40,741 2,178 983,267 175 9,650 40,7418 Slash Pine (14) 2,192 929,000 161 8,828 44,850 2,192 929,000 161 8,828 44 8509 Lobtolly Pine (16) 6,593 3,088,959 566 31,136 56,277 6,593 3,088,959 566 31,136 56,27710 Japanese Larch (16) 3,073 1,432,133 221 12,149 3,073 1,432,133 221 12,149 011 Japanese Larch (14) 2,667 1,212,132 310 17,037 2,667 1,212,132 310 17,037 012 Korean Larch (16) 5,000 2,330,808 460 25,310 5,000 2,330,808 460 25,310 013 Korean Larch (14) 6,273 2,865,217 661 36,369 6,273 2,865,217 66t 36,369 014 Chinese Uhite Poptar (11) 5,961 3,395,067 306 16,826 5.961 3,395,067 306 16,826 015 Populus Simonit (12) 1,780 547,368 86 4,703 1,780 547,368 86 4,703 016 Eucalyptus (11) 2,965 768,699 166 9,105 2,965 768,699 166 9,105 017 Slack Locust (18) 884 433,338 74 4,076 884 433,338 74 4,076 018 Schima Superba (11) 2,948 1,211,775 486 26,739 2,948 1,211,775 486 26,739 019 noso Bamboo - New (11) 1,262,513 0 0 0 0 1,262,51320 Moso Baoboo - Rehab. (HI) 1,406,628 3,310,028 0 0 0 0 1,903,40021 Arundinaria (11) 132.184 0 0 0 0 132,184

Total 2,400 100,800 400 22,000 1,406,628 116,774 43,836,208 11,152 613,334 9,041,120 114,374 43,731,071 10,752 591,334 T,634,492

Note:a/ Production is based on one growing cycle for each species, Aich ranves frau 7 to 30 years.

Values are expressed in current financial terms.b/ Inctudins alt other products, such as fruit, nuts, and resins. I

CNINAFOREST RESOURCE OEVELOPENT AND PROrECTION PROJECT

Border Prices for Primary Products and inputs(In 1994 Constant Prices)~~~~~~~~~~~~~~~~~~~~~~~.., ..................... .............................................................. ... .... . ......................................................... ..... .......... .....

Bamboo Potasslum Large Logs PulpwoodShoot Chestnut Pear Resin Urea DAP Chloride (cu.m) (cu.m)

Met lrade Status X X X X N r N 4 N

1994 Prices

Wortd Market Price (USS/ton) 1/ 1,045 869 509 405 127 137 116 88 18Ocean Freight (US$/ton) 0 0 0 0 40 40 40 i5 15CIF or FOS Port (US$/ton) 1,045 869 509 405 167 177 156 103 33CIF or FOB Port (Y/ton) 2/ 9,091 7,556 4,432 3,524 1,453 1,540 1,357 896 287

Port Chargei and Margin (Y/ton) 3/ (843) (705) (424) (342) 156 164 147 90 42.ransport: Port to Wholesaler (YVton) 4/ (45) (45) (45) (45) 45 45 45 36 29

Price ex-mill 8,202 6,806 3,963 3,136 t,654 1,748 1,549 1,022 358Processing Adjustment 5 0.60 0.75 0.90 0.90 1.00 1.00 1.00 1.00 1.00Processing/Assembty Cost (Y/ton) 6/ (817) (272) (291) (1,043) 30 30 30 0 0Quatity Adjustment 7/ (2,148) (1,617) (2,306)Transport: Farm to Wholesaler (Y/ton) 8/ (75) (75) (75) (75) 75 75 75 60 49

Economic Farm-gate Price (V/ton) 1,882 3,140 894 1,705 1,759 1,853 1,654 1,082 407financial Farm-gate Price (V/ton) 9/ 1,430 2,600 780 1,300 1,755 2,070 1,354 966 434

2005 Prices...........

Uorld Market Price (US$/ton) 1/ 993 825 484 385 155 154 114 88 18Ocean freight (USS/ton) 0 0 0 0 40 40 40 15 15CIF or FOB Port (USS/ton) 993 825 484 385 195 194 154 103 33CIF or FOB Port tY/ton) 2/ 8,636 7,178 4,210 3,347 1,697 1,688 1,340 896 287

Port Charges and Margin (V/ton) 3/ (802) (671) (404) (320) 178 177 146 90 42Iransport: Port to Wholesaler (Y/ton) 4/ (45) (45) (45) (45) 45 45 45 36 29Price ex-mill 7,789 6,462 3,761 2,976 1,919 1,910 1 530 1,022 358Processing AdJustment 5/ 0.60 0.75 0.90 0.90 1.00 1.00 i.00 1.00 1.00Processing/Assembly Cost (Y/ton) 6/ (817) (272) (291) (1,043) 30 30 30 0 0Ouality Adjustment 7/ (2,148) (1,617) (2,306)Transport: Farm to Wholesaler (Y/ton) 8/ (75) (75) (75) (75) 75 75 75 60 49

Economic Farm-gate Price (Y/ton) 1,633 2,883 713 1,561 2,024 2,015 1,635 1,082 407Financial Farm-gate Price (Y/ton) 9/ 1,430 2,600 780 1,300 1,755 2,070 1,354 S56 434

If tJorld market prices for bamboo shoot (canned and in salt water), chestnut, pear and resin are based on actural FOB China port prices (datafrom "China Customs Statitics Yearbook 1993") and adjusted to 1994 prices. Log price Is based on large diameter larch (22-30 cm) irqportedfrom C.l.S., on a per cubic meter basis (data from Japanes Luder Market Report, April 1993). Pulpwood price is based on J-sort of smalldiameter mixed whiteuood, larch and red pine, on a per cubic meter basfs (IENIN Coomincatlen). Fertilizer prices are based on the WorldBank Commodity Price Forecasts dated November 2, 1993.

2/ Exchange rate of Y8.7a USI.00.3/ Port handling L:arge of Y25/ton plus 9% distributor's margin.4/ Based on rail transport charse of YO.04/ton/kss an average distance of 900km and a rail transportation convertion factor of 1.25.S/ Includirig spoilage of 5X for chestnut, 10X each for banboo shoot and pear and 10% loss for resin.6/ Including cost of cardboard cartons of Y5/box for bamboo shoot, chestnut and pear, packing density of 50 boxes/ton; packing cost of

Y400/ton for resin; labor cost of V42/t for bamboo shoot and V525/t for Resin and a conversion factor of 0.97.7/ Including quality adjustment cost, inferior product value and a conversion focter of 0.97.8/ Based on road transportation charge of YO.5o0ton/km, an average distance of 50km for timber anid 150km for other.9/ FinancIal prices are based on large diameter Chinese fir for logs and smalt diameter larch for putlpwood.

CHNIAFOREST RESOIJRCE DcVELOPIENT t4D PROTECTION PROJECT

input And Output Prices For Financiat And Economic Analysis(Yuan)

,,..,,,............................ .................. ................................... .... ...... .............. ....................... ......... .......................................... ..................... .. .............................

Input Output,................. .................................. ..... ............. . ........................ I................................................. ......... .............. ... ......................... ..... ......... ................

Financial Economic Financial Economic financial EconomicUnit Price Price Unit P-ice Price Unit Price Price......... ........................ .... . .......... .... ..... .... ... .............. ...... ...... ................... ........ .

Labor Cypress Loblol.y PineFor Protection forest day 9.50 9.22 Small Dim. cu.m. 504.00 478.80 Large Diam. Cu.m.. 652.60 717.86For Plantations 11 day 10.50 10.19 Cull cu.m. 230.00 230.00 NediuA Diam. cu.m. 555.10 555.10For Euc. Plantations day 11.50 11.16 Residual Value cu.m. 42.00 42.00 Small Diam. CU.M. 392.40 372.78

Fertilizer Sawtooth Oak Cull cu.m. 282.90 282.90DAP kg 2.07 1.85 Small Oiam. CU.M. 264.00 250.80 Japanese LarchUrea kg 1.76 1.76 Cult cu.m. 172.50 172.50 Medius Diam. 1u.m. 548.60 548.60Potassium Chloride kg 1.35 1.65 Residual Value cu.m. 42.00 42.00 Small Clam. Cu.M. 434.40 412.68Calcium Superphosphate kg 1.05 1.05 Chtstnut kg 2.60 3.11. CuLt Cu.m. 293.25 293.25

Organic Manure ton 11D .00 106.70 Pear kg 0.78 0.89 bKorean LarchPesticide kg 50.00 50.00 Eucomnia Medium Diem. CU.,. 548.60 548.60Seedling Small Oiam. cu.m. 180.00 171.00 Small Diam. cu.M. 434.40 412.68Cypress 1000 pint 35.00 33.95 cull cu.m. 100.00 100.00 Cull Cu.m. 293.25 293.25Alder 1000 pInt 55.00 53.35 Bark kg 39.00 42.90 Chinese White PoplarBroad-leaf Tree 1000 pint 55.00 53.35 Residual Value tree 12.00 12.00 Large Diam. cu.m. 676.00 743.60Sawtooth Oak 1000 pint 55.00 53.35 Chinese Sumac Medium Diam. cu.m. 533.00 533.00Chestnut 1000 pint 1,650.00 1,600.50 Gullnut kg 19.50 21.45 small Diam. cu.M. 240.00 228.00 1Pear 1000 pInt 1,650.00 1,600.50 Residual Value Cu.m.. 42.00 42.00 Cull cu.m. 172.50 172.50Eucommia 1000 pInt 275.00 266.75 Hills-Closure Populus SimoniiChinese Sumac 1000 pint 715.00 693.55 Cull Cu.m. 180.00 180.00 Large Diam. CU.m. 409.50 450.45 oWhite Birth 1000 pint 55.00 53.35 Residual Value Cu.m. 42.00 42.00 Medium Diam. cu.m. 339.30 339 30fills-Closure 1004 pint 45.04 43.65 Chinese Fir 21 Small Diam. Cu.M. 241.20 229:14Chinese Fir 2/ 1000 pInt 50.00 48.50 Small Diam. Cu.m. 564.00 535.80 Cull cu.m. 181.70 181.70Chinese fir 3/ 1000 pint 65.00 63.05 Cull Cu.m. 310.50 310.50 EucalyptusHasson Pine 2/ 1000 pInt 45.00 43.65 Residual Value Cu... 54.00 54.00 Madium Diam. cu.m. 326.30 326.30Hasson Pine 3/ 1000 pInt 50.00 48.50 Chinese Fir 3/ Small Diam. cu.m. 258.00 245.10Slash Pine 1000 pInt 105.00 101.85 Large Diam. cu.m. 965.90 1.062.49 Cull 172.50 172.50Loblolly Pine 1000 pInt 110.00 106.70 hedium Diam. cu.m. 798.20 798.20 Black LocustJapanese Larch 1000 pInt 110.00 106.70 Small Diam. cu.M. 508.80 483.36 Medium Diam. cu.m. 544.70 544.70Korean Larch 1000 pInt 80.00 77.60 Cull Cu.m. 328.90 328.90 Small Deam. Cu.,. 388.80 369.36Chinese White Poplar 1000 pInt 1,540.00 1,493.80 Hasson Pine 2/ Cull cu.m. 241.50 241.50Populus Simonii 1000 pInt 605.00 586.85 Nedium Diam. Cu.M. 520.00 520.00 Schima SuperbaEucalyptus 1000 pInt 115.00 111 NS Small Diam. cu.M. 384.00 364.80 HediLum Diem. cu.m. 533.00 533.00Black Locust 1000 pInt 550.00 5! . Cull cu.m. 264.50 264.50 Small Dim. Cu.m. 367.20 348.84Schima Superba 1000 pInt 10'i.00 1I .05 Residual Value cu.m. 48.00 48.00 Cull Cu.m. 271.40 211.40hoso Bamboo 1000 pint 3,850.00 3,7..4.50 hasson Pine 3/ Noso BacbooArundinaria 1000 pInt 1,800.00 1,746.00 Large Diam. cu.m. 638.30 702.13 Bamboo kg 0.46 0.46

Medium Diem. Cu.,. 522.60 S22.60 Bamboo Shoot kg 1.43 1.88Small Diam. cu.M. 376.80 357.96 Arundinaria kgCull cu.m. 266.80 266.80 Bamboo kg 0.26 0.26

Slash Pine Banmoo Shoot kg 1.43 1.88Large Diam. Cu.M. 664.30 730.73 Resin kg 1.30 t.70Ntedium Diaem cu.M. 533.00 533.00 Fueluood ton 5S.00 55.00Small Dbia. cu.m. 385.20 365.94Cutl cu.m. 257.60 257.60

,,,,,,,,.,,,,,,,,,,...................................................................... ,,,,,,,............................................... ............. ......................... . .....................................................

Note:1/ Except for Euca(yptus.2/ For protection forest.3/ For plantations. 01

- 101 -Amex E

Page 2 of 2

CHINAFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

Main Conversion Factors

Shadow Exchange Rate Y9.00 = USS1.00

Standard Conversion Factor a/ 0.97

Standard Discount Rate 12 percent

Machinery/Equipment bt 1.20

Labor - Rural Unskilled Labor 0.97- Skilled/Technician 2.00

Transportation - Rail 1.25- Road (market) 1.00

rimber - Large Diameter 1.10- Medium Diameter 1.00- Small Diameter 0.95- Cull 1.00

Fuelwood 1.00

Other Inputs/Outputs Border or Market Prices

a] SCF = (Official Erxchange.Rate)/(Shadow Exchange Rate) = 8.7/9.0b/ For locally manufactured machinery and equipment procured locally.

- 102 -

FOREST RESOWRCC DVOPNM AD A TROZCTICO PROJECT

RET AMD COST RECOVE Y ANaLYSZS

(COMSTAIT 1994 !Mw '000)

_._.___________________------------------_---_-_------_--__-----_--___------

TOTAL

DUMRNG PROJTECT'S LiFS a/

Incremental Zncome b/ 4,744,484

Less:

Imputed Value, Farm Labor c/ 346,637

Imputed Value, management Services d/ 474,448

Imputed Return to Own Capital ./ 237,224

Allowance for Risk/Uhcertainty d/ 474,448

Subtotal 1,s32,75a

Eq.tal

Project Rent 3,211,726

Less Project Charges:

Taxes L/ 1,027,305

Interest and Loan Repayment q/ 874,578

Total Charges 1,901,683

Rent Recovery zndex (t) h/ 59.2t

Project Costs i/ 2,02S,030

Cost Recovery Index (1) J/ 93.9*

Notes: a/ Expressed as proseat values over 33-year project life, discounted at12*.

b/ Based on the net incremental income of afforestation entities before

deducting project charges azd debt services.c/ Based on incremental labor valued at 97J of the market wage.

d/ Based on lot of incremental income.

e/ 9ased on 5* of incremental income.f/ Tax rates include 18* for reforestation and reinvestment fees and 18J for

for product and specialty taxes.g/ Avera%ge on-lending rate for all project loans is 4.2t.

h/ Project charges as a percentage of project ret.

i/ Total project costs exclude afforestation entity labor contribution.

J/ Project charges as a percentage of proBect cost.

CHINAFOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

Financial Rate of Return Analysis for Project(Constant 1994 o000 Yuan)

...... ......... ..... ........... .......... ................... . ..... ......... .... ........................ .............................................. ---------------------------------------........................... . .. ..

Item year 1 2 3 4 5 6 7 8 9 10 11 .F 13 14 15 16.......................................................................................................................... I...........................................ExpensesMaterial/Equipment 157.284 146,369 169,037 74.739 0 0 0 0 0 0 0 0 0 .. 0 0Seedling 49.624 79,692 91 612 41 044 0 0 0 0 0 0 0 0 a 0 0 aFertilizer 41.992 63,492 73.714 32,049 0 0 0 0 0 0 0 0 0 o 0o 0Pesticide 1,804 2,745 3,204 1,382 0 0 0 0 0 0 0 0 0 0 0 0Equipment 63,534 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Organic Hanure 330 440 506 264 0 0 0 0 0 0 0 0 0 0 0

Labor 224,477 386,726 515,344 333,463 149.678 93.883 127.591 158,124 175,239 196,775 203.803 231,677 186,795 185,101 319.245 387,534Site Preparation 94,507 144,495 168,848 72,573 0 0 0 0 0 0 0 0 0 0 0 aLand Clearing 45,012 66,790 78,561 33,680 0 0 0 0 0 0 0 0 0 0 0 0Conservation 1,421 2,367 2,844 1,132 0 0 0 0 0 0 0 0 0 0 0 0Forest Tracks 6,785 10,282 12,045 5,167 0 0 0 0 0 0 0 0 0 0 0 0Planting 29,608 45,796 52,944 23,160 0 0 0 0 0 0 0 0 0 0 0 0Tending 47,143 116,995 197,987 192,676 134,901 67,987 40,339 39,896 39,879 38,724 39,077 38,405 38,359 38,118 38,515 37,410Cutting/Harvesting 0 0 2,112 5,074 14,778 25,896 87,252 118,228 135,360 158,051 164,726 193,273 148,436 146,984 280,73l 350,123

Other 28,444 47,176 59,916 36,538 15,123 12,683 11,937 tl,840 11,702 11,543 11,418 11,345 11,261 11,228 11,228 11,075Guard/Storage Shed 16,774 25.106 29,262 12,618 0 0 0 0 0 0 0 0 0 0 0 0Survey/Design 7,240 11,076 12,981 5,563 0 0 0 0 0 0 0 0 0 0 0 0information Management 633 1,575 2,377 2,375 1,835 1,609 1,609 1,593 1,570 1,544 1,523 1,512 1,499 1,494 1,494 1,471Environment monitoring 654 1,605 2,417 2,090 1,062 253 0 0 0 0 0 0 0 0 0 0Management 2,510 6,239 10,506 11,827 11,170 10,568 10,328 10,247 10,132 10,000 9,894 9,833 9,761 9,734 9,734 9,604Inspection/Supervision 636 1,574 2,373 2,066 1,056 253 o 0 0 0 0 0 0 0 0 0 1

Nursery Program 25,891 11,956 701 1,500 0 0 0 0 0 0 0 0 0 0 0 0 -Research Program 6,374 6,374 6,374 6,374 6,374 0 0 0 0 0 0 0 0 0 0 0 OCapacity Building Program 13,859 7,899 5.213 4 070 350 350 0 0 0 0 0 0 0 0 0 0Base Expenses 456,330 606,499 t-6,584 456,684 171,525 106,916 139,528 169,963 186,941 208,318 215,221 245,022 198,056 196,329 330,473 398,608Physical Contingency 54,900 72,967 PCt769 57,241 15,884 4,549 0 0 0 0 0 0 0 0 0 0Total Expenses 511,231 679,466 847,353 509,925 187,410 111,465 139,528 169,963 186,941 208,318 215,221 243,022 198,056 196,329 330,473 398,608RevenuesLarge Diameter 0 0 0 0 0 0 0 0 0 16,757 21,327 24,754 9,521 0 394 568 591,852Medium Diameter 0 0 0 0 0 0 63,433 90,059 103,372 119,284 95,004 110,273 42,413 0 326,354 504,510Smatl Diameter 0 0 0 0 0 0 74,512 106,209 122,120 138 864 137,109 163,578 80,154 102,718 196,673 243,396cutl 0 0 0 0 0 0 26,426 37,910 43,710 77,683 102,352 123,250 68,061 76,723 138,929 167,186Fuetwood 0 0 0 0 0 0 2,121 3,174 3,726 9,819 13,659 16,259 13,742 18,371 31,046 29,301Residue Vatue 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Bamboo 0 0 5,970 14,178 34,862 53,326 76,567 93,676 106,582 116,035 122,630 127,244 129,447 130,743 133,076 138,000Other 0 0 4,118 9,976 31,340 59,208 92,405 119,374 136,580 149,181 185,319 231,513 292,404 323,939 323,541 325,795

Total Revenues 0 0 10,088 24,154 66,202 112,534 335 483 450,402 516,090 628,222 677,400 796,870 636,342 652,494 1,544,186 2,000,039Without Project Revenue 7,976 18,942 32,775 38,258 38,258 38,258 38,258 38,258 38,258 38,258 38,258 38,258 38,258 38,258 38,258 34,258Balance Before Taxes (519,206) (698,408:l870,040)(524,030)(159,466)C37,190)157,697 242,180 290,890 381,646 423,921 SiS,590 400,028 417 906 1,1F5,454 1,563,172

axes 0 0 1,704 4 077 11,046 18,587 57,715 77,575 58,880 107,756 114,871 134,663 103,956 105,044 265,038 348,249Fees 0 0 657 1,560 3,835 5,866 26,505 36,064 41,336 51,548 52,626 60,401 36,322 34,120 130,856 180,944

Balance After Taxes (519,206) (698,n48)(872,401(52 ) 128,540 160,675 222,341 256,424 320,526 259,750 278,742 779,560 1,033,919. . . ........... ......... ................. .............. ................. ..................... ................................ ... .. . . ..... ........ .. ... ...

Net Present Value (a 12X) 2,347 d34 FRi Before Taxes 17.6XfR8 After Taxes 14.2XFRR: 20X decrease sales price 15.3X SWITCHING VALUE (8 12X): 40.5XFRR: 20K increase production cost 15.5X 66.6X (4FRR: 20X increase capital cost 16.2X 112.4X °

17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33,............................... ............................................................................................................

........... .................................... .............................................................

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

'0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

381,269 614,228 723,359 1,500,936 1,434,221 1,396,830 792,749 291,867 259,616 197,408 e11,239 78,656 504 121,397 154,520 146,933 58,005

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

o 0 0 a 0 0 0 0 0 0 0 0 0 0 o 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 037,471 36,234 34,831 32,833 26,955 21,264 16,416 14,285 13,604 11,156 7,259 2,478 504 504 378 216 61

343,798 577,994 688,528 1,468,103 1,407,267 1,375,566 776 333 277 5,2 246,011 186,253 203,980 76,177 0 120,893 154,142 146,717 57,944

10,838 10,561 9,848 8,976 7,041 5.253 3,524 2,543 2,222 1,3 1,186 510 238 238 179 102 29

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1,434 1,392 1,303 1,201 969 753 545 426 388 30z 205 78 28 28 21 12 3

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 09,404 9,170 8,545 7,7m 6,071 4,500 2,980 2,118 1,834 1,431 981 432 210 210 158 90 26

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 CI0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

392,107 624,789 733,206 1,509,912 1,441,262 1,402,082 796,273 294,410 261,838 199,147 212,425 79,166 742 121,635 154,698 147,035 58,034

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

392,107 624,789 733,206 1,509.912 1,641,262 1,402,082 796,273 294,410 261,838 199,147 212,425 79,166 742 121,635 154,698 147,035 58,034

682,273 295,926 0 38,555 61,422 71,862 30,807 0 0 0 0 0 0126,331 160,189 152,076 60,019591,158 1,029,044 1,129,824 3,348,601 3,618,766 3,901,193 2,127,517 637,254 304,043 34,528 40,498 13,051 00 598,730 758,905 20, 336 784.278

173,215 921,796 1,333,305 2,969,403 2,729,224 2,640,274 1,524,640 522,583 433,167 323,351 402,965 147,528 0 133,795 169,868 161,361 63,694

119,476 153,629 210,593 411,349 370,083 316,604 164,429 49,882 121,859 147,284 -.75,951 70,909 0 13,082 16,617 15,788 6,232

19.526 24,586 33,267 77,052 76,419 69,797 35,541 8,217 27,053 313,928 41,356 17,201 0 2,060 2,626 2,500 987

0 0 0 320,339 508,393 529,456 268,594 0 255,332 374, 411 446,397 182,971 0 0 0 0 0

142,406 144,997 144,997 144,997 116,744 72,576 22,473 0 0 0 0 0 0 0 0 0 0

318,776 335,045 346,076 40~,?969 387,018 331,783 255,778 188,240 188,240 157,950 100,646 29,744 0 3,440 4,914 4,914 1,9662,046,830 2,905,023 3,198,062 7,713,265 7,868,069 7,933,545 4,429,779 1,406,176 1,329,693 1,071,452 1,207,812 461,405 0 877,438 1,113,120 1,056,975 417,175

38,258 38,258 38,258 131,156 158,040 180,174 69,381 0 24,962 34,537 38,875 17,827 0 0 0 0 0

1,616,464 2,241,976 2,426,598 6,072,198 6,268,768 6,351,288 3,564,124 1,111,765 1,042,894 837,768 956,512 364,413 (742) 755,802 958,421 909,940 359,141358,769 513,518 564,918 1,316,148 1,309,499 1,319,856 741,035 248,405 184,586 115,632 127,830 46,593 0 159,209 201,953 191,757 75,683

187,938 279,993 310,059 760,420 758,586 770,276 425,685 133,069 94,498 55,568 68,136 25,464 0 95,913 121,614 115,452 45,564

1,069,75 1,448,465 1,551,620 3 ,99,630 4 ,200,682 4,261,156 2,397,404 730,291 763,810 666,568 760,547 292,356 (742) 500,681 634,855 602,731 237,893…... . .. o…o. . . . . . . . . . . . . . . . . . . . . . . . . . . .

o o o o o o o o o o o o o o o o o~~~~~~~~~~o o o o o o o o o o o o o o o o o~~~~~~"

CHINAFOREST RES0URCE DEVELOPMENT AND PROTECTION PROJECT

Economic Rate of Return Analysis for Project(Constant 1994 $000 Yuan)

.......... ...................... .............. ............................. ......... ................ ......... ............... ......----------.......-------------.--..---......------------- ~ .. .... . ... .. . . .. .

Item Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16. ............... ............ ....................... .. .---. -.. -. -. ---.... . ............. .. ..... .. .. ... - -- -- -- -- -- -- --- ------ --- -

ExpensesMaterialEquipment 153,576 140,688 162,428 71,828 0 0 0 0 0 0 0 0 0 0 0 0Seedling 48,135 77,302 88,864 39,813 0 0 0 0 0 0 0 0 0 0 0 0

Fertilizer 39,783 60,215 69,869 30,378 0 0 0 0 0 0 0 0 a 0 0 0

Pesticide 1, 4 2,745 3,204 1,382 0 0 0 0 0 0 0 0 0 0 0 0

Equipment 63,534 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Organic Manure 320 427 491 256 0 0 0 0 0 0 0 0 0 0 0 0

Labor 217,742 375,124 499,883 323,219 144,614 90,120 122,646 152,263 168,864 189,769 196,594 223,635 180,085 178,431 308,586 374,842

Site Preparation 91,671 140,160 163,783 70,396 0 0 0 0 0 0 0 0 0 0 0 0

Land Clearing 43,662 64,786 76,204 32,669 0 0 0 0 0 0 0 0 0 0 0 0

Conservation 1,379 2,296 2,759 1,098 0 0 0 0 0 0 0 0 0 0 0 0

Forest Tracks 6,582 9,974 11,684 5,012 0 0 0 0 0 0 0 0 0 0 0 0

Planting 28,720 44,422 51,356 22,466 0 0 0 0 0 0 0 0 0 0 0 0

Tending 45,729 113,485 192,048 186,656 130,279 65,001 38,011 37,582 37,565 36,445 36,787 36,135 36,091 35,857 36,242 35,171

Cutting/Harvesting 0 0 2,049 4 922 14,334 25,119 84,634 114,681 131,299 153,324 159,807 187,500 143,994 142,574 272,344 339,671

Other 41,921 71,726 93,197 61,011 29,352 24,521 23,048 22,860 22,593 22,287 22,044 21,903 21,740 21,677 21,677 21,381Guard/storage Shed 19,357 28,973 33,768 14,561 0 0 0 0 0 0 0 0 0 0 0 0Survey/Design 13,900 21,265 24,924 10,681 0 0 0 0 0 0 0 0 0 0 0 0

information Management 1,266 3,151 4,754 4,749 3,671 3,218 3,218 3,186 3,140 3,087 3,047 3,024 2,998 2,988 2,988 2,941

Environment Monitoring 1,307 3,211 4,833 4,181 2,123 506 0 0 0 0 0 0 0 0 0 0

Management 4,819 11,979 20,172 22,708 21,446 20,290 19,829 19,674 19,453 19,200 18,997 18,879 18,742 18,689 18,689 18,440

Inspection/Supervision 1,272 3,148 4,746 4,131 2,113 506 0 0 0 0 0 0 0 0 0 0

Nursery Program 28,124 13 720 701 1,500 0 0 0 0 0 0 0 0 0 0 0 0

Research Program 11,406 11,406 11,406 11,406 11,406 0 0 0 0 0 0 0 0 0 0 0 o

Capacity Building Program 13,859 7,899 5,213 4,070 350 350 0 0 0 0 0 0 0 0 0 0 an

Base Expenses 466,629 620,563 772 828 473,034 185,722 114,990 145,693 175,122 191,458 212,056 218,638 245,539 201,825 200,108 330,263 396,223 1

Physical Contingency 56,139 74,659 92,731 55,015 17,117 4,712 0 0 0 0 0 0 0 0 0 0

Totat Expenses 522,768 695,222 865,559 528,049 202,839 119,703 145,693 175,122 191,458 212,056 218,638 245,539 201,825 200,108 330,263 396,223

RevenuesLarge Diameter 0 0 0 0 0 0 0 0 0 18,432 23,459 27,230 10,473 0 434,024 651,037Medium Diameter 0 0 0 0 0 0 63,433 90,059 103,372 119,284 95,004 110,273 42,413 0 326,354 504,510Small Diameter 0 0 0 0 0 0 70,786 100,898 116,014 131,921 130,253 155,399 76,716 97,582 186,839 231,226

Cull 0 0 0 0 0 0 26,426 37 910 43,710 77,683 102 352 123,250 68,061 76,723 138,929 167,186

fuetwood 0 0 0 0 0 0 2,121 3,174 3,726 9,819 13,659 16,259 13,742 18,371 31,046 29,301

Residue Value 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Bamboo 0 0 5,970 14,178 34,862 53,326 76,587 93,676 106,582 116,035 122,630 127,244 129,447 130,743 133 076 138,000Other 0 0 5,419 13,093 39,976 74 202 114,741 146,533 167,499 184,256 227,856 284,521 358,353 396,890 396,999 398,756

Totat Revenues 0 0 11,388 27,271 74,838 127,529 354,094 472,550 540,902 657,429 715,214 844,175 699,206 720,309 1,647,267 2,120,015

without Project Revenue 9,339 22,181 38,379 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44 800 44 800

Balance Before Taxes (532,108) (717,403)(892,550)t545,578)(172,801)(36,974)163,600 252,627 304,645 400,573 451,776 553,836 452,581 475,401 1,272,204 1,678,992

....................................................................................................................................Net Present Value (3 12X) 2,412,359ERR 17.7X

ERR: 20X decrease sales price 15.3X SUITCHING VALUE (9 121): 40.81ERR: 20X increass production cost 15.7X 70.8XERR: 20X incredse capital cost 16.2X 112.3X 1

" h

17 18 19 20 21 22 23 24 25 26 27 28 29 30 "I 32 33

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

36,7 59,09 7004 14470 13 0,7 1,5 07 76,4 28 9 2070 1 060 204,5 7612 48 11,5 14,8 14,2 5626

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 006,7 59 09 7004 14470 13 007 15,07 06,4 08,9 207 0 1 060 2045 0612 08 01,5 14 08 04 2 56260 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

35,230 34,030 32,668 30,730 25,029 19,509 14,80 12,739 12 U79 9,944 6,499 2,234 489 489 367 210 59333,543 560,679 667,872 1,424,060 1,365,049 1,334,299 753,043 269,255 238,: -1 180,665 197,860 73,892 0 117,266 149,518 142,315 56,206

20,924 20,389 19,012 17,329 13,595 10,145 6,810 4,917 4,297 3,362 2,294 9bf, 459 459 344 197 56

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 02,868 2,783 2,606 2,401 1,938 1,506 1,089 851 775 615 410 156 56 56 42 24 7

0 0 0 0 0 0l 0 0 0 0 0 0 0 0 0 0 0

18,055 17,605 16,405 14,928 11,657 8,639 5,721 4,066 3,522 2,747 1,883 830 403 403 302 173 490 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

389,697 615,097 719,552 1,472,120 1,403,673 1,363,952 774,659 286,911 255,007 193,971 206,652 77,112 948 118,215 150,229 142,722 56,321

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

389,697 615,097 719,552 1,472,120 1,403,673 1,363,952 774,659 286,911 255,007 193,971 206,652 77,112 948 118,215 150,229 142,722 56.321

750,501 325,518 0 42,410 67,564 79,048 33,887 0 0 0 0 0 0 138,964 176,208 167,283 66,021

591,158 1,029,044 1,129,824 3,348,601 3,618,766 3,901,193 2,127,517 637,254 304,043 34,528 40,498 13,051 0 598,730 758,905 720,336 284,278

164,554 875,706 1,266,640 2,820,933 2.592,763 2,508,260 1,448,408 496,454 411,508 307,183 382,817 140,152 0 127,106 161,375 153,293 60,509119,476 153,629 210,593 411,349 370,083 316,604 164,429 49,882 121,859 147,284 175,951 70,909 0 13,082 16, 617 15,788 6,232

19,526 24,586 33,267 77,052 76,419 69,797 35,541 8,217 27,053 33,928 41,356 17,201 0 2,060 2,626 2,500 987

0 0 0 326,227 517,694 539,920 273,335 0 255,332 374,411 446,397 182,971 0 0 0 0 0142,406 144,997 144,997 144,997 116,744 72,576 22,473 0 0 0 0 0 0 0 0 0 0

389 499 412,877 427,966 499 822 475,626 406,216 307,408 224,305 224,305 188,242 120,050 35,566 0 4,511 6,445 6,445 2,578

2,1717120 2,966,358 3,213,287 7,671:391 7,835,659 7,893,614 4,412,998 1,416,112 1,344,101 1,085,576 1,207,068 459,851 0 884,453 1,122,176 1,065,645 420,605

44,800 44,800 44,800 138,R998 165,006 185,732 71,213 0 24,962 34,537 38,875 17,827 0 0 0 a 0

1,742,623 2,306,461 2,448,935 6,060,273 6,266,980 6,343,930 3,567,126 1,129,201 1,064,132 857,069 961,540 364,912 (948) 766,238 971,947 922,924 364,i84-0.~~~~~~~~~~~~~~~~I

- 107 - Annex E6Page 5 of S

CHINAFOREST RES0URCE DEVELOPMENT AND PROTECTION PROJECT

Summry of Financial and Economic Analysis

..... ....._............................. ......................................................................... _. .. __

Financial Financial Economic EconomicSpecies IRR NPV 8/ IRR NPV a/

(1) ($000 Y) (M) ('000 Y'

Protection Forest 15.1 195,229 16.2 279,7361 Cypress/Aider 10.1 (450) 9.7 (559)2 Hasson Pine/Broad-leaf Tree 11.2 (204) 10.7 (312)3 Masson Pine 12.1 34 11.7 (92)4 Chinese Fir 13.4 529 13.0 386S Sawtooth Oak 9.9 (355) 9.4 (44)6 Chestnut 22.6 r,461 25.6 10,9007 Pear 20.8 5,884 23.2 8,3048 Euccmmia 18.1 3,782 18.4 4,0459 Chinese Sumac/White Birth 25.9 5,7M 27.8 7,04110 HiIls-Closure-1 10.7 (110) 10.9 (93)11 Hitls-Closure-2 12.0 (1) 12.2 10

Plantation 18.1 2,152,375 18.0 2,132,6231 Chinese Fir (18) 18.2 7,077 18.0 7,0072 Chinese Fir (16) 20.7 7,745 20.4 7,4643 Chinese Fir (14) 18.2 5,240 18.0 4,9474 Masson Pine (14) 17.5 3,070 17.2 2,918S Masson Pine (16) 18.5 4,306 18.3 4,1916 Slash Pine (18) 14.7 1,907 14.5 1,8597 Slash Pine (16) 18.9 4,770 18.7 4,7128 Slash Pine (14) 18.5 4,039 18.3 3,9319 Lobiolly Pine (16) 19.7 5,677 19.5 5,55810 Japanese Larch (16) 16.1 2,609 15.8 2,37911 Japanese Larch (14) 16.5 2,509 16.1 2,26812 Korean Larch (16) 15.8 2,264 15.4 2,04013 Korean Larch (14) 15.9 2.066 15.4 1,83414 Chinese White Poplar (II) 24.2 8,533 24.6 9,24415 Populus Simonii (12) 26.9 4,684 26.8 4,69016 Eucalyptus (II) 28.9 3,594 28.1 3,41017 Black Loeust (18) 18.7 2,851 18.6 2,80318 Schim Superbe (II) 16.3 2,091 15.8 1,88119 Noso Bamboo - New (11) 23.7 11,844 25.6 14,54320 Noso Bamboo - Rehab. (II) 21.1 5,758 21.7 6,75621 Arundinaria (1I) 22.0 5,309 23.3 6,184

Total Project 17.6 2,347.604 17.7 2,412,359................. ..................................... . . . * ._a/ Based on 12X disrount rate.

- 108 - Afx E

Page 1 of 2

FOREST RESOURCE DEVELOPMENT AND PROTECTION PROJECT

SELECTED DOCUMENTS AVAILABLE IN THE PROJECT FILES

A. Government Reports and Studies Related to the Project

1. Feasibility Study Report for the China Forest Resource Development and ProtecdonProject, Ministry of Forestry, October 1993.

2. Afforestation Models for Intensively Managed Plantations, Ministry of Forestry, April1993.

3. Financial Analysis of Silvicultural Models for the Intensively Managed PlanuttionComponent, Ministry of Forestry, October 1993.

4. Economic Analysis for the Silvicultural Models for the Intensively Managed PlantationComponent, Ministry of Forestry, October 1993.

i. Afforestation Model Establishment and Financial and Economic Benefit Analysis forMultiple-Use Protection Forest, Ministry of Forestry, October 1993.

6. Plan for Development of Improved Planting Material, Ministry of Forestry, October1993.

7. Guideline on Technical Management of Seedling Nurseries, Ministry of Forestry,October 1993.

8. Standards for Seedlings of Major Species for Project Plantation, Ministry of Forestry,October 1993.

9. Research Plan, Ministry of Forestry, October 1993.

10. Extension Plan of Scientific and Technological Achievements, Ministry of Forestry,October 1993.

11. Report on Analysis of FRDPP's Impacts on Environment, Ministry of Forestry, October1993.

12. Training Plan, Ministry of Forestry, October 1993.

13. Procurement Schedule for Equipment and Materials for FRDPP, Ministry of Forestry,October 1993.

14. Terms of Reference for Tree Seedling Production Coordination Group for FRDPP,

- 109 - Page 2 of2

Ministry of Forestry, Octobe; 1993.

15. Afforestation Model Establishment and Benefit Analysis of the Feasibility Study forMulti-Functional Protective Forest Project: Report on a Special Subject, ForestryExploration and Design Insitute of Sichu-.n, April 1993.

B. Consultant Reports and Studies Related to the Project

1. Conservation Issues in Protective Forests: A Draft Report for FRDPP Pre-AppraisalMission, Ben Haagsma, June 1993.

2. High-Yielding Techniques on Bamboo Cultivation: Consultancy Report for Pre-Appraisal of FRDPP, Lou Yiping, June 1993.

3. Technical Report on Nurseries: Pre-Appraisal Mission of FRDPP, Andrew Gordon,June 1993.

4. Report on Larch, Pcplar, Nurseries and Plant Quality: Pre-Appraisal Mission ofFRDPP, A. Gordon, June 1993.

5. Silvcultural Management of Natural Broadleaved Forests in Jiangxi Province, IanHutchinson, October 1993.

6. Appraisal of Research and Extension in FRDPP, Groome Poyry, December 1993.

C. Working Papers

1. Project Costs

2. Financial and Economic Analysis

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