China: Building a Modern Fiscal System Technical Assistance Project (P154694) 15th Implementation Support Mission and Implementation Completion and Results Report Mission, April 11-17, 2024 Aide Memoire I. INTRODUCTION A World Bank team comprising Kevin Chua (Task Team Leader), Yan Wang (ICR author), and Mingjie Li (Program Assistant) conducted the 15th implementation support and the implementation completion and results report (ICR) mission in Beijing on April 11-17, 2024. The objectives of the mission were to: (i) discuss progress toward achieving the project’s development objectives; (ii) learn about the implementation status of the secondment program; (iii) follow up details on the cancellation request; (iv) provide necessary support to ensure compliance with Bank procurement and financial management rules; (v) gather information on results indicators and supported activities; (vi) examine documentary evidence to the achievement of sub- projects; and (vii) conduct interviews and gather feedbacks on project benefits, implementation challenges, and lessons learned from different stakeholders. During the mission, the team met with Mr. Sun Dahai (Director, Policy and Research Department, MOF), Mr. Huang Bin (Director, Bureau of Supervision, MOF), Ms. Hu Yang (Deputy Director, Policy and Research Department, MOF), Ms. Gao Ling (Project Coordinator), Mr. Shi Qing Hun (ICR Consultant, Central University of Finance and Economics), and staff of the Treasury and Human Resources departments of MOF (see the list of participants for the implementation support mission in Annex 1). Yan Wang interviewed representatives from 21 subprojects implementing departments for the ICR. The team expresses its deep appreciation to the MOF and the hosting staff for their generous hospitality, collaboration during the mission, and support in setting up various meetings for the ICR mission. II. KEY PROJECT DATA & RATINGS Project Key Dates Previous Ratings Effectiveness Date Aug. 25, 2016 PDO Moderately satisfactory Original Closing Date July 31, 2021 IP Moderately satisfactory 1st Revised Closing Date July 31, 2022 Overall Risk Moderate 2nd Revised Closing Date July 31, 2025 Project Financing Components Revised Amt Committed Amt* Original Project Amt US$22,000,000 Component 1 US$12,870,000 US$12,870,000 (100%) Revised Project Amt US$16,500,000 Component 2 US$3,575,000 US$3,575,000 (100%) % Disbursed 87% (US$14,333,020) * allocated to activities of each component respectively III. SUMMARY OF THE MISSION The overall implementation status of the capacity building program needs to be accelerated to ensure the project completion in July 2025. Though the HR department has been making efforts to advance the secondment program, there was no disbursement since the last mission in November 2023. The Bank team reiterated the hard timeline for the secondee plan, and the mandatory completion of all activities before the Page 1 of 6 project closing. The team further reminded that expenditures must be incurred on or before the closing date, while disbursement is allowed up to four months after project closing. The HR department is committed to speed up disbursement and is expecting to raise the disbursement rate of the secondment program from the present 67 percent to 75 percent before the end of July 2024. It will second 7 more staff in international organizations within the first half of this year.1 HR has concluded the internal selection of staff; however, the interviews with international organizations have not yet commenced. The HR department shared that the setback in the program came from two sources: the longer interview process in international organizations, and the insufficient diversity of seconded institutions. The MOF is recommended to reach out to the international organizations to expedite their interview process. Besides the secondment program, the planned public procurement forum in Shanghai in the fall of 2023 has been postponed to the second half of 2024 to align with MOF internal approval process of trainings. The Treasury department is committed to accelerate the process and emphasize the importance of the forum to enhance knowledge and capacity for the practitioners in the context of China’s negotiating GPA with the WTO. Client is also organizing overseas trainings for 12 MOF staff: seven staff on labor-related subjects with the International Training Centre of the International Labour Organization in Turin, and five staff on international trade law and public procurement with the United Nations Institute for Training and Research in Copenhagen in the second half of 2024. The PMO had launched the preparation of the borrower’s ICR and signed the contract with Prof. Shi Qing Hun of the Central University of Finance and Economics as consultant. The Bank team informed the PMO of the team’s ongoing ICR preparation. Yan Wang held interviews with various government stakeholders between April 11-17. Finally, MOF intended to seek a cancellation of US$1.0662 million under fiscal and taxation forum and training activities since no further activities are planned for implementation. The cancellation request is undergoing internal review and processing, which will be concluded by mid-May. The Bank awaits to receive the formal request from the client. IV. IMPLEMENTATION PROGRESS AND KEY FINDINGS PDO Statement: The objective of the Project is to inform the design and implementation of the central government’s fiscal reform program and to improve the government’s capacity in public financial management. Implementation Status. MOF has placed 27 secondees (23 unique individuals) in international organizations, including IFAD, WB (HQs), IMF and IFC, so far. As a next step, MOF HR Department has selected candidates for potential interviews with international organizations. The interview dates are not known and depend on the international organizations. MOF has informed the team that the target secondment positions are allotted for applicants from China. ICR interviews and evidence gathering. Together with the PMO coordinator and commissioned evaluator, Yan Wang participated in joint interviews of 21 subproject implementing departments. Counterpart has earlier shared 29 self-ICRRs; majority of which, were well-structured and of high quality. During the mission, MOF departments presented results and evidence of recommendations being adopted in national level 1 Staffs will be seconded to World Bank (two staff), International Sustainability Standards Board (two staff), IFC (one staff), IMF (one staff), and Central Asia Regional Economic Cooperation Institute (one staff). Page 2 of 6 regulations or ministerial level documents. Some evidence of adoption materialized in the last few years after the subproject completion. The Treasury, the Accounting, the Social Security, and Resource and Environment departments provided good evidence. The team, however, requests for additional or alternative evidence from the personnel and education, and policy research departments, to verify achievements for A03 (Overseas training), A05 (Study on fiscal management), B02 (Study on medium and long term development challenges) and B03 (Study on development of global economic governance system) subprojects. Counterparts will send additional evidence to the PMO by May. Summary of interviews Date Departments Subprojects Comments on results 4/11/2024 Personnel and education A03, A16 Incomplete Accounting B08 With good evidence Treasury A01, A18, A15, A17 With good evidence Policy research A05, B02, B03 With fewer to no evidence 4/15/2024 Tax policy department A11, A14 With good evidence Customs department B04 With good evidence Social Security A23, B09 With good evidence 4/16/2024 Monitoring and evaluation A22 With good evidence department 4/17/2024 Legal department A07 With good evidence State asset management A19 With good evidence Resource and Environment B10 With good evidence department Budget department A09, A21 With some good evidence Fiduciary Compliance： Procurement：The majority of procurement under this project has been completed. It is understood that the client may have sporadic additional procurement if necessary. The mission reminded the client that before initiation of any new procurement, the contract activity should be entered into the system for Bank no objection. The status of procurement should be timely updated in the system as well. Financial Management: The IFR as of June 30, 2023 has been submitted to the Bank with quality acceptable to the Bank. The auditor expressed unqualified (clean) audit opinion to the 2022 audit report and no significant audit issues were raised. The Bank loan disbursement is carried out based on the implementing progress. The disbursement status as of mission date is as follow. Allocated Disbursed Undisbursed Disb. % Category Category Description USD USD USD Totals 16,500,000.00 14,333,020.22 2,166,979.78 87% 1 GDs,CS,N-CS,TRN &IOC 16,445,000.00 12,278,020.22 4,166,979.78 75% DA-A Designated account 0.00 2,000,000.00 -2,000,000.00 FEF FRONT END FEE 55,000.00 55,000.00 0.00 Safeguards management: This project is Category C and there are no safeguards issues. Risk assessment: The risk ratings remain unchanged compared to the previous period. Page 3 of 6 Annex 1: Participants List 世界银行贷款“现代财政制度与国家治理”技援项目 第十五次督导会参会人员名单 子项目 序号 姓名 工作单位 职务 编号 世行项目管理团队 1 Kevin Chua 世界银行 项目经理 2 李明洁 世界银行 项目官员 3 王燕 世界银行 绩效评价专家 4 王帅 世界银行 翻译 联合项目办 1 孙大海 财政部政策研究室 财经研究室处长 2 胡阳 财政部政策研究室 财经研究室副处长 3 黄斌 财政部监督评价局 综合处处长 4 高玲 清洁基金财税二期日常实施 高级项目管理顾问 项目办 咨询机构 1 施青军 中央财经大学 被督导子项目 1 A03-2017 张雅琴 国库司 一级调研员 2 A03-2017 斯文 国库司 干部 3 A16-2019 赵昕 人事教育司 一级主任科员 4 A16-2019 姜嘉沁 人事教育司 试用期干部 Page 4 of 6 Annex 2: Results Project Development Objectives: The development objectives of the proposed project are to inform the design and implementation of the central government’s fiscal reform program and to improve the government’s capacity in public financial management. Project Development Objective Indicators 1. Dissemination of fiscal policy reform proposals to decision makers 2. Enhanced capacity and skills in core budget management systems (number) in MOF (percentage) Cumulative Target Values Cumulative Target Values YR1 YR2 YR2 YR4 YR5 YR6 YR1 YR2 YR3 YR4 YR5 YR6 (end target) (end target) 0 [0] 3 [0] 5 [5] 6 [8] 10 [10] 12 [13] 0 [0] 0 [50] 0 [75] 0 [75] 0 [75] 75 [75] Policy reform recommendations were integrated into policy design in the A beneficiary survey was conducted. The survey collected and following areas, supplementing the overall fiscal reforms recorded information on benefits of the training received, focusing on whether concepts and skills acquired during training activities are Budget Management subsequently used by participants in their day-to-day job. • Formulated institutional framework for government financial report (MOF circular and guidelines: Treasury Department Overall, more than 75 percent of the staff responded enhanced Guidelines on accrual-based financial reporting and on capacity and skill from the trainings. Specifically: consolidated financial statements (MOF Treasury No. 29, No. 30, No. 66. [2018]). Secondments: 78 percent of the 9 respondents answered they used • Interim Measures for Highway Assets Management (MOF asset knowledge and skills attained from the training. management No.83, [2021]) • “Government Accounting Standards No. 10 – Guide for Contract of Overseas study in technical areas: 81 percent of the 36 responding PPP project Revised”, “Accounting Standards for Business participants answered that global knowledge and experience provided Enterprises No. 12 -- Debt Restructuring", and Revised "Accounting useful reference for policy formation. Standards for Business Enterprises No. 7 -- Non-Monetary Asset Exchange” Workshop: 96 percent of the 32 respondents answered favorably that the topical workshops are beneficial and inspiring to improve policy design and implementation. Tax Policy • Policy on the Pre-tax Deductions for Public Welfare Donations (MOF, SAT and MOCA No. 27, [2020]) Page 5 of 6 Laws for fiscal policy measures and fiscal policy regulations • “Excise tax law” was submitted to the state council in 2020, and legislative review is underway • “Tariff law” was submitted to the State Council in 2020, being under review • “Administrative regulations on government procurement of public services” was issued by MOF in January 2020 • Revision of the Government Procurement Law • State Council’s decree on the State-owned Assets of administrative and public institutions Fiscal Policy to support sustainable growth • Policy on Hainan Duty Free shopping (increasing duty-free shopping quota to 100,000 yuan per person per year), and tax reduction on personal imported items (MOF, Customs Administration and SAT No. 17, [ 2019]) • Interim Provisions on Accounting Treatment of Carbon Emission • Draft of Medical Security Law, June 2021 • State Council’s guidelines on fiscal policies to promote construction of national parks (September, 2022) Page 6 of 6