ADB Backing China's Shift to Develop Poor West

The Asian Development Bank (ADB) is endorsing China's push to develop its impoverished Western regions by shifting much of its lending and investment to the west from the more developed east.

Over the past three years, about two-thirds of the bank's funding in China has gone to projects in the west, and in the coming three years that is likely to rise to 75 percent, according to Bruce Murray, the ADB's new resident representative in China.

``Everybody knows the shining lights of Beijing and Shanghai," Murray said. "That's not China."

China's economic reforms over the past two decades have created regional disparities -- in southwestern Guizhou province, gross domestic product per capita is less than one-tenth of Shanghai, China's largest city.

Aware of the social problems created by the disparity in wealth, the Chinese government has launched a major campaign to develop the Western hinterland, with Premier Zhu Rongji in March telling lawmakers development of the west was a priority to ensure sustainable growth.

The ADB will assist with investments similar to the 25 million UD dollars it poured last year into a water supply project in Chengdu, the capital of Sichuan province.

ADB lending to China will total about 3.5 billion US dollars over the next three years, accounting for 20 percent of the bank's total. Adding other sorts of financing, such as equity investments, the amount could be 4 billion US dollars.

To spend the money wisely, the ADB will seek to coordinate better with the Chinese government -- a task that will become easier after its resident mission in China opens on Friday in Beijing across the road from the central bank.

Day-to-day contacts with Chinese officials could also contribute to the ADB's broader goal for China, which is to not only provide money but also change the way people think and markets work.

Insurance is one area in need of development in China where the ADB's expertise can be of help, Murray said.

It is currently in talks with two insurance companies, one foreign and one Chinese, to set up joint ventures in China, and could be finalizing both deals within the coming 12 months, Murray said.

One of the proposed ventures is in medical insurance, and ties in with the ADB's effort to help China reform its social security system.

That could affect millions. As China reforms its state-owned enterprises, large numbers of staff are being thrown out of work and get cut off from welfare benefits that previously were provided virtually free by the state.

The plans to invest in insurance also marks a shift away from the ADB's previous investment strategy in China's financial sector, which was tilted more towards reform of the banking industry.

One year ago, the ADB was considering minority investments in two or three local banks to match stakes it already has in Everbright Bank of China and Xiamen Development Bank.

Since then, it has had a closer look at the three banks, and it is no longer sure they would be a safe bet.

"There is the problem of non-performing loans," Murray said. "And there are signals from the government that they are closing insolvent financial institutions.''

To contribute to the development of a more secure environment for local and foreign businesses, the ADB is providing legal assistance to China. It helped in the formulation in the Tender and Bidding Law, which now requires public bidding for all large engineering projects.

Still, China is nowhere near the end of legal reform, and it will be at least a decade before legal risk ceases to be a major concern for investors in the country, according to Murray.

"British common law has developed over 700 or 800 years," he said. "China is trying to change its entire legal system in just 30."





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