PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE REPORT NO AB5083

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PROJECT INFORMATION DOCUMENT (PID)

PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB5083

Project Name	Liaoning and Shandong Technical and Vocational Education and Training Project (TVET II)
Region	EAST ASIA AND PACIFIC
Sector	Vocational training (100%)
Project ID	P117107
Borrower(s)	PEOPLE'S REPUBLIC OF CHINA
	Ministry of Finance Sanlihe China Fax: 86 10 6855-1125
Implementing Agency	Provinces of Liaoning and Shandong
Environment Category	[ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared	February 4, 2010
Date of Appraisal Authorization	December 8, 2009
Date of Board Approval	May 12, 2010

Country and Sector Background

China opened its economy and launched economic reforms in 1978, producing three decades of sustained growth. GDP grew at an average annual rate of over 9 percent during this period, sufficient to lift more than 500 million out of poverty in a country of just over 1.3 billion people. The beneficiaries of growth were the poor. Between 1981 and 2004, the fraction of the population consuming below the poverty line fell from 65 percent to 10 percent, and the absolute number of poor fell from 653 million to 135 million. Only about one percent of China’s population is in extreme poverty.

Located along the upper eastern seaboard, Liaoning and Shandong Provinces are part of China’s growth story. Liaoning Province is the largest economy in Northeastern China. Its nominal GDP for 2008 was 1.346 trillion yuan (US$194 billion), making it the 8^th largest in China. Its population numbers 43 million. Liaoning is one of China’s most important industrial bases and is now undergoing a restructuring of its state-owned enterprises. Shandong Province with 94 million people is China’s second largest province. Located along the Yellow Sea to the south of Liaoning Province, Shandong is one of the richer provinces in China. In 2008, its nominal GDP was 3.11 trillion yuan (US$446 billion) ranking second in the country behind Guangdong Province.

The growing industrialization of the two provinces has increased the importance of economic reforms and investment in education and training to promote balanced growth. Like Guangdong Province, industry is moving beyond low-skill, labor-intensive manufacturing to more capital and skill-intensive growth. The restructuring of state-owned enterprises in Liaoning is producing a vibrant non-state sector accounting for 29 percent of the 20.7 million employed. The non-state sector in Shandong is smaller in relative terms, representing 17.5 of total employment, but still significant. In both provinces, the growth of capital-intensive manufacturing and services is increasing the demand for education and skills.

National estimates show returns to education increasing beyond basic education of 9 years. Returns to vocational secondary education are found to exceed those of general secondary education with returns higher for those in lower income quartiles than in upper income quartiles indicating low-income workers are especially benefiting from this education making it important to the balanced growth agenda. Strong returns are also found for tertiary education. Vocational and technical education is available in an array of upper middle schools, specialized secondary schools, skilled workers schools, and vocational high schools. Tertiary vocational education is offered in vocational colleges, 5-year programs in specialized secondary schools, and tertiary vocational education in regular higher education and adult higher education institutions.

Enrollments in secondary vocational and technical education in Liaoning account for 38 percent of secondary enrollments and 40 percent in Shandong. No estimates of vocational enrollments are available for tertiary institutions in these provinces, but the national percentage is about 45 percent which approaches the national goal set by the Chinese government for half general and half vocational and technical education at tertiary levels. In both provinces about 70 percent of vocational enrollees in secondary and tertiary education come from rural areas where quality factors in basic education lead to lower scores on competitive entrance exams making a vocational option the only way for many to obtain a secondary and tertiary education. Non-state schools are playing a larger role in providing vocational schooling with secondary enrolments growing from 6.9 percent in 1997 to 11.1 percent in 2003.

Employers are also an important source of skills in China through on-the-job training, apprenticeships, and short-term training. They also help guide schools in the choice of skills offered and provide access to technology and equipment. The World Bank’s Investment Climate Assessment surveys for China show nearly 9 out of 10 Chinese enterprises train their workers. Liaoning spends 14.3 percent of its government budget on education, while Shandong spends a higher share reaching 20 percent. For nearly three decades, China with its export-led development has produced large numbers of jobs absorbing the flow of graduates from vocational and technical education programs. Liaoning and Shandong have shared in this growth and have provided more and better employment opportunities with the introduction of new, more skill-intensive technologies.

While jobs have been plentiful for the graduates of secondary and tertiary vocational and technical education and training programs, there are issues influencing spending and the quality and relevance of these programs. Governance and coordination of public spending on vocational and technical education poses an important issue. Public investment flows through a mix of government departments including Education, Human Resources and Social Security, and other technical departments such as Urban Construction, Transport, Agriculture, etc. The diversity of administrative bodies responsible for education and training leads to overlaps and a lack of coordination in public expenditure on education and training.

In addition to the issue of governance, government’s role in developing the market for education and training is nascent, as are its efforts to regulate the market and address issues of market failure and imperfections. Government, largely through the Ministry of Human Resources and Social Security, has expanded labor market information to help schools and students make better decisions about the skills offered and acquired. It has set standards for training and provided testing and skill certification to employers as a guide for hiring and wage setting and to individuals for judging the quality of training they receive. Regulation of the emerging non-state provision is intended to protect consumers and accreditation of schools provides information about quality. Along with these roles, government plays a key role through financing ensuring the access of the poor to good quality education and training.

While government has made progress in developing and expanding market institutions to guide decisions by households and enterprises for education and training, another set of issues exists that are receiving less attention and are affecting the provision of skills by schools and training institutions. These issues relate to the quality and relevance of the skills provided by schools and training institutions. Studies highlight issues of outdated equipment in training workshops, curricula and certification systems that are disconnected from modern industrial needs, instructors with limited industrial experience, and management not well equipped to manage in a rapidly changing market environment. In addressing these issues, schools are unlikely to mobilize additional private financing, since tertiary vocational colleges in Liaoning and Shandong already recover from a disadvantaged population as much as 70 percent of their operating expenses from tuition.

The growing non-state sector, including private schools and employers, could play an important role in improving the quality and relevance of skills available. There are reasons, however, to doubt that the non-state sector can replace an effective state sector offering good quality education and training. Among private schools, the scale of this activity accounts for just 11 percent of schooling capacity, and the market niches filled by these institutions, largely in urban areas and in low-cost skills, e.g. business education and IT services, leaves much of the market under-served and dependent on state provision, especially in rural areas. Employers are also a source of financing for skills, but while many enterprises train, not all will train and among those that do, not all workers are trained. The average is 39 percent. Those trained are workers who already have education and those without this education are left behind.

If Liaoning and Shandong are to be part of the modernization of China’s economy and sustain the growth they have experienced, they will need to join with reforms addressing the issues above. Guangdong Province has just launched a series of school-based reforms that address issues at the school level and initiated studies for policy and market development. These reforms include strengthening school-industry linkages, improving school management, updating curricula and pedagogy, retraining instructors, and upgrading facilities and equipment. The opportunity exists to pilot similar reforms in Liaoning and Shandong in secondary and tertiary technical and vocational schools that provide for improvements in skills delivery. The lessons acquired can be combined with those from Guangdong to develop policies ensuring a workforce that is well-suited to the needs of a knowledge intensive economy.

Objectives

The project’s development objective is to improve the quality and relevance of technical education in eight schools in two provinces and produce lessons from this experience as a guide for future school reforms and policy development.

Rationale for Bank Involvement

The World Bank has a long record of investing in technical and vocational education and training (TVET) reforms, going back to 1963. The knowledge and lessons drawn from this experience provide a rationale for involvement in this sector. In China specifically, the World Bank has accumulated experience in implementing three projects in areas related to technical and vocational education, including the Vocational and Technical Education Project which closed in 1997, the recent China Vocational Education Reform Project which closed in 2002, and the Labor Market Development Project which closed in 2006. Further, against the background of China’s investment in upgrading school infrastructure and student assistance programs, the Bank is able to fill an important gap by introducing international experience and innovation in school-based reforms and supporting policy studies of key sector and system-wide issues to further inform government policies and investments.

The Bank’s comparative advantage includes its ability to leverage international experience with that which is country-specific through economic and sector work. The Bank has recently completed policy studies in Guangdong Province and the City of Chongqing. Its intellectual and financial support to the sector is often important to bringing other donors to the table and enlarging the financing available for sector support, as evidenced in the Guangdong TVET project by the mobilizing of support from the Republic of Korea. Finally, the Bank can bring its experience in monitoring and evaluation to help build a learning culture for school management and policy development, supporting better resource allocation and program outcomes.

The Bank’s engagement in public investment for TVET will support innovations in Liaoning and Shandong Provinces and eight schools to improve the quality and relevance of training offered by strengthening capacity for delivery of a modular, Competency-Based Training (CBT) curriculum that connects the curriculum more closely with competencies sought by industry and shifts the instructional model from a teacher to a learner-centered approach. The Bank will bring international experience to this pilot activity and contribute to the design of an evaluation for extracting lessons to be shared with other schools in the two provinces and nationally strengthening reforms and policy development for TVET.

Description

The project has two components: (i) school-based reforms and innovation, and (ii) knowledge development, policy studies and capacity building.

Component One. School-Based Reforms and Innovation. This component will introduce reforms that provide goods, services, and works to: (i) strengthen school-industry linkages; (ii) improve school management; (iii) introduce a modular, competency-based training (CBT) curriculum with instructional materials; (iv) improve student assessment; (v) equip instructors to use the new modular, CBT curriculum and expand their industry experience; and (vi) upgrade facilities and equipment for CBT programs.

Component Two. Knowledge Development, Policy Studies and Capacity Building. Learning from school-based reforms and innovations is an important feature of the project that in the future will support better management and policy development for technical and vocational education and training throughout China. This component will: (i) improve monitoring and evaluation to capture lessons from the reforms; (ii) disseminate the lessons produced; and (iii) build capacity for planning and implementation of the reforms.

Financing

Source:	($m.)
Borrower	40
International Bank for Reconstruction and Development	34
Total	74

Implementation

The project will be implemented in the two provinces of Liaoning and Shandong. Each province will have its own project designated account and implementation structure. In Shandong, the Shandong Education Bureau will have the overall responsibility for coordinating project implementation in four project schools and organizing provincially managed activities. In Liaoning, the Liaoning Urban Construction Office will be responsible for coordinating project implementation in four project schools and organizing provincially managed activities. In each province, the project will establish an inter-bureau Project Steering Committee to provide policy guidance and overall direction, a Project Management Offices (PMO) to implement day-to-day project activities. Each of the project schools will further establish a Project Implementation Unit (PIU) at the school level.

Sustainability

Key elements for achieving project sustainability are political commitment, economic and financial viability, and stakeholder participation. At the level of political commitment, the Government of China recognizes the critical importance of technical and vocational education and training to growth and poverty reduction and is fully committed to further investment in this sector. This commitment is reflected in the 11^th Five Year Program (2006-2010), and the numerous policies and programs adopted by the national and local governments in recent years.

In terms of economic and financial viability, the project’s economic analysis shows benefits that significantly exceed the project costs with an estimated internal rate of return of 9.6 percent. The capital and recurrent cost of the project are expected to be manageable. The Finance Bureaus in Liaoning and Shandong Provinces have confirmed their willingness to provide adequate counterpart financing to ensure that all activities will be adequately financed.

Finally, the project is built on a good understanding and ownership by the government and consultation with school administrators and instructors. The investment package of reforms will enhance the opportunities for trainees to get better jobs and to better manage income risks.

Lessons Learned from Past Operations in the Country/Sector

The project builds on lessons learned in designing and implementing projects in China and elsewhere. Lessons drawn from international experience in TVET relevant to this project include the following:

Strong links between schools and industry.
Effective school management.
Modular, competency-based training.
Quality assurance.
Development of market institutions.
Diverse providers of training.
Promotion of lifelong learning.
Building a learning culture.
Importance of pathways to further education.

Some specific lessons learned from the Bank’s China portfolio include the Labor Market Development and Vocational Training projects, include the importance of developing and utilizing labor market information, systematic capacity building and institutional development, and establishing industrial liaison committees as a mechanism to enhance partnership with industries.

Safeguard Policies (including public consultation)

Safeguard Policies Triggered by the Project	Yes	No
Environmental Assessment (OP/BP 4.01)	[ X]	[ ]
Natural Habitats (OP/BP 4.04)	[ ]	[ X]
Pest Management (OP 4.09)	[ ]	[X ]
Physical Cultural Resources (OP/BP 4.11)	[ ]	[ X]
Involuntary Resettlement (OP/BP 4.12)	[ ]	[ X]
Indigenous Peoples (OP/BP 4.10)	[ ]	[X ]
Forests (OP/BP 4.36)	[ ]	[ X]
Safety of Dams (OP/BP 4.37)	[ ]	[X ]
Projects in Disputed Areas (OP/BP 7.60)^{^*}	[ ]	[ X]
Projects on International Waterways (OP/BP 7.50)	[ ]	[ X]