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Inequality, Climate Change, Aging: Three Key Challenges for China’s New Era

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Asian Development Bank (ADB) President Takehiko Nakao addressed the China Development Forum (CDF), which opened today in Beijing. Mr. Nakao will meet Premier Li Keqiang along with other participants of the CDF. He also participated in a roundtable with Vice Premier Liu He.

During his visit to Beijing, Mr. Nakao met the new Finance Minister and ADB Governor Liu Kun to exchange views on the status of the global and PRC economies, the PRC’s reforms including in the fiscal area, and the strong development partnership between ADB and the PRC. Minister Liu and Mr. Nakao agreed to promote regional cooperation through the Belt and Road Initiative, the Central Asia Regional Economic Cooperation Program, and the Greater Mekong Subregion Economic Cooperation Program.

In his remarks to the CDF, Mr. Nakao praised the PRC for its remarkable development over the past 40 years. The PRC has grown from one of the poorest countries in the world to the second largest economy globally, and it is on the verge of reaching upper-income status. “The China Development Forum is especially memorable this year as it marks the 40th anniversary of China’s start of reforms and opening up,” said Mr. Nakao.

Mr. Nakao highlighted three policy challenges for the PRC as it transitions to high-quality growth in a new era: (i) inclusiveness, (ii) climate change and the environment, and (iii) an aging society. He emphasized, in particular, the need for inclusive development. Mr. Nakao remarked “China is already a very dynamic and innovative country with momentum for continued growth. Making society more inclusive and equal is a greater challenge for China than achieving further technological development and industrial transformation.”

In his speech, Mr. Nakao stressed that macroeconomic stability and efficient markets are prerequisites for tackling the three challenges and, more generally, promoting sustainable and inclusive growth.

ADB operations are supporting the PRC in meeting the three challenges.

To support inclusiveness, ADB is providing the country with technical assistance to reform the tax system. Making the taxation more progressive and broadening the coverage of personal income taxes will improve equity and help augment government revenue to fund the delivery of social services. ADB is also focusing on education and skills development, including technical and vocational education and training, especially in lagging areas such as Guangxi and with a focus on gender. In addition, ADB is supporting small and medium-sized enterprises through microfinance and capacity building.

Mr. Nakao commended the PRC’s efforts in promoting a better environment, building a green economy, and mitigating climate change under the COP21 Paris Agreement. Since 2015, ADB has been working with the government to improve air quality in the Greater Beijing–Tianjin–Hebei region through a series of reform programs and projects. ADB is also planning to provide $2 billion during the 13th Five-Year Plan period of 2016–2020 to help the PRC address water pollution control and water resources management in the upper and middle reaches of the Yangtze River.

ADB is supporting the PRC’s development needs in an aging society, where the number of people aged 65 years and older reached a record 158 million in 2017. For example, ADB has been supporting efforts to reform the rural social security system, strengthen health and pension administration, and build age-friendly cities.

The CDF is a high-level event organized by the Development Research Center of the PRC’s State Council. Founded in 2000, the annual event offers a platform for global business leaders, representatives of international organizations, and international experts including Nobel Laureates to have direct dialogue with the PRC’s top decision makers and economic planners. Mr. Nakao has attended the CDF since 2014 as one of the first foreign speakers.

The PRC became an ADB member in 1986. Between 1986 and 2017, ADB provided close to $38 billion in loan assistance to the PRC, comprising $34 billion for the public sector and $4 billion for the private sector. ADB has also been supporting the PRC through knowledge work, with $334 million in technical assistance grants approved since 1986.

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New ADB Platform to Help Boost Financing for Climate Action

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The Asian Development Bank (ADB) has launched a new platform aimed at helping its developing member countries in Asia and the Pacific mobilize funding to meet their goals under the Paris Agreement.

The NDC Advance platform will help countries mobilize finance to implement Nationally Determined Contributions (NDCs) regarding greenhouse gas emissions that each country has voluntarily committed to under the Paris Agreement. NDCs also describe priority actions for countries to adapt to climate change.

The announcement was made at the 24th Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP24) in Katowice, Poland, which is aiming to finalize a rulebook for the Paris Agreement when it goes into effect on 1 January 2020.

The agreement aims to limit the increase in the global average temperature to below 2°C, while aiming for 1.5°C.

“Through their NDCs, our developing member countries have made ambitious commitments to respond to climate change,” said ADB Vice-President for Knowledge Management and Sustainable Development Mr. Bambang Susantono. “We need to ensure that countries are able to mobilize the needed financing to deliver on their commitments. NDC Advance will help countries devise investment plans to tap financing from a variety of sources and to implement priority projects effectively.”

NDC Advance is funded through a $4.55 million grant from ADB and will have three aims: providing technical assistance that helps countries better engage with potential sources of climate finance and to make use of innovative finance mechanisms; identifying and prioritizing climate projects; and supporting countries in tracking how projects deliver against their NDC goals.

The new initiative will help propel the climate actions ADB has committed to under its Strategy 2030 program.

ADB earlier this year committed to ensuring that 75% of its operations will support climate change mitigation and adaptation by 2030, while providing cumulative climate financing of $80 billion from its own sources between 2019 and 2030.

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Egypt: Shifting Public Funds from Infrastructure to Investing in People

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Egypt has an opportunity to capitalize on current reforms by enabling more private investment in infrastructure and freeing up public funds for investments in people’s education, health and social protection. This is according to a new World Bank report launched today in Cairo,‘’Egypt: Enabling Private Investment and Commercial Financing in Infrastructure’’, which calls for increasing the public funds available for building human capital by expanding successful energy reforms to other key sectors, such as transport, logistics, water and agriculture.

Egypt can learn from global experience and gain by increasing the use of private sector finance, management expertise and innovation in commercial infrastructure and agriculture, conserving public sector resources for where they are needed most”, said Clive Harris, Head for Maximizing Finance for Development for the World Bank.

Egypt is now beginning to reap the benefits of its transformative economic reform program. Macroeconomic stability and market confidence have been largely restored, growth has resumed, fiscal accounts are improving, and the public debt ratio is projected to fall for the first time in a decade.

Egypt has demonstrated that by having a package aimed at reducing economic risks, pursuing sector level reforms and well-prepared bankable projects, large scale foreign and domestic investment can be achieved, This is visible through the  US$ 2 billion invested in the largest solar park in the world, Benban, as well as US$ 13 billion in the Zohr field and other natural gas projects” said Ashish Khanna, Program Leader for Sustainable Development at the World Bank.

The report indicates that the action plan to further enabling private investment requires clear policy actions to resolve four cross cutting barriers to private investment – namely better management of land, transparency in Government procurement, efficiency in state owned enterprise and encouraging long term domestic financing. This needs to be complemented with developing projects for private investments with maximum economic impact, like the regional energy hub, logistics corridors, freight transport and agricultural transformation hubs.

The gains from reforms would also free up scarce public resources and allow for them to be re-allocated to investments in the education and health of Egyptians, the country’s human capital. Reforms in the energy sector provide an example of what is possible. The reform of energy subsidies freed up US$14 billon, reduced the pressure on the national budget and allowed the quadrupling of the investments in social safety net programs.

According to the report, for Egypt to maintain its reform momentum and focus on investing in its citizens, it will need to broaden and deepen its reform agenda to other sectors. This would be part of a fundamental shift away from the state as a provider of employment and output to an enabler of private investment; with the economy driven by a dynamic private sector generating jobs for the youth.

The report identifies four sectors which have huge potential for private investments and illustrates how successfully attracting those investments would generate growth, create jobs and ultimately contribute to developing Egypt’s human capital. The four sectors analyzed in the report are: transport, energy, water and sanitation, and agriculture.

The World Bank provides technical, analytical and financial support to help Egypt reduce poverty and boost shared prosperity. The focus of Bank support includes social safety nets, energy, transport, rural water and sanitation, irrigation, social housing, health care, job creation, and financing for micro and small enterprises. The World Bank currently has a portfolio of 16 projects with a total commitment of US$6.69 billion.

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New Initiative to Mitigate Risk for Global Solar Scale-up

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The World Bank and Agence Française de Développement (AFD) are developing a joint Global Solar Risk Mitigation Initiative (SRMI), an integrated approach to tackle policy, technical and financial issues associated with scaling up solar energy deployment, especially in some of the world’s poorest countries.

Initiated in Delhi at the first International Solar Alliance (ISA) summit in March 2018, the initiative will support the ISA’s goal to reduce costs and mobilize $1,000 billion in public and private investments to finance 1,000 GW of global solar capacity by 2030.

“The World Bank, in partnership with AFD, remains committed to the International Solar Alliance’s goals and to global efforts to fight climate change. Through this new, integrated approach, we hope to further scale up solar energy use by reducing the cost of financing for solar projects and de-risking them, especially in low-income countries,” said Riccardo Puliti, Senior Director of Energy and Extractives at the World Bank.

As the costs for solar power have fallen steadily, solar power is increasingly viewed as a key component in the fight against climate change. However, solar deployment has been slow in some emerging markets, particularly Africa, due to layers of risks perceived by the private sector in financing solar projects. The SRMI aims to change that.

“This partnership with ISA and the World Bank is another step towards achieving the objective of the Paris Agreement of redirecting financial flows in favor of low carbon and resilient development pathways.  AFD is glad to join forces with these partners to deliver on the commitments made at COP21, to bring solutions to de-risk potential solar investments and mobilize the private sector to invest in sustainable development” said Rémy RIOUX, CEO of AFD.

The SRMI’s integrated approach will include:

  • Support for the development of an enabling policy environment in targeted countries
  • A new digital procurement (e-tendering) platform to facilitate and streamline solar auctions
  • Targeting relatively small (under 20 MW) solar projects, offering a more comprehensive risk mitigation package of support to a wider range of investors and financiers to promote scale up at later stages. The financial risk mitigation package offered by SRMI will be supported by technical assistance and concerted engagement on planning, resource mapping and power sector reforms to ensure the creditworthiness of utilities in these countries
  • Mitigating the residual project’s risks through adequate risk mitigation financial instruments for both on and off-grid projects

The governments of India and France launched the ISA, an international organization as part of the Paris Climate Agreement in 2015 to scale up solar energy resources, reduce the cost of financing for solar projects around the world and ultimately help reach the Sustainable Development Goal on energy (SDG7) of providing access to affordable, reliable, sustainable and modern energy to all. To date, 71 countries have signed the constituting treaty of the ISA, and 48 have ratified it.

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