December 18, 2007 - This paper has been prepared to mark the quarter-century partnership between China and
the Bank and the special role that innovation has played. The heart of the paper is two sets of case studies: 19 case studies that highlight important innovations that China has introduced, with the Bank playing a supporting role, during the past 25+ years, and 19 examples of new areas of innovation where China has enlisted Bank support.

Looking back

One striking lesson is that the most important innovations arose from sustained engagement over a long period, but several other common lessons emerge: the importance of pacing and sequencing innovations in line with the capacity and needs of Chinese institutions; the recognition of the extra time, resources, and effort required to develop and introduce truly innovative approaches; and the importance of building long-term, two-way partnerships.

The cases also illustrate China’s shifting demands for innovation as the country has rapidly developed.

One case study in the report shows how China used World Bank knowledge to build a market for solar photovoltaic and wind energy technologies almost from scratch. As a result of improving product standards and building a competitive market, the cost of PV systems in China has been halved and solar PV modules made by several manufacturers now compete internationally. More than 2 million people in western China now get electricity from solar and wind energy where there was no power before.

Another example outlines how combining erosion control and income-generating activities for farmers healed large-scale environmental damage and improved livelihoods in the Loess Plateau, home to 50 million poor people.

Looking forward

In 2006 China adopted its 11th five-year socioeconomic plan, which outlines the country’s  important challenges. They are the need to address external imbalances, improve energy efficiency, reduce environmental degradation, and enhance development in rural areas and lagging regions.

At the same time, the Bank prepared an updated five-year Country Partnership Strategy to guide its future work in China. At an early stage in the preparation, the Bank engaged in wide consultations around the country with government, academia, and civil society. Two questions put to these groups were

• whether the Bank still has a useful role in China at this stage of its development and
   
• what this role is.

While there was a range of views, a clear majority felt that China continues to face daunting institutional and policy challenges and that the Bank could still help in developing innovative solutions through a combination of lending, studies, and training. However, there also was a sense that the Bank would have to work hard to remain relevant, because addressing the remaining key challenges, which are increasingly more complex and difficult, requires both top-quality technical skills as well as deep knowledge of China.

Going forward, China is placing an increasing emphasis on growth that is balanced with social and environmental concerns. Given the resources constraint and difficult reform challenges, innovative approaches, ideas, and system reforms will be critical to China’s achieving its goal of a well off society by 2020.

Innovation will be a key for future World Bank cooperation with China. Potential areas identified for future work include

• improving energy efficiency;
   
• introducing new approaches to promote more balanced urbanization;
   
• introducing new public finance methodologies that go beyond traditional development projects to support rural development;
   
• reforming land administration; 
   
• and strengthening public participation to improve public service delivery and environmental management.

The last section of the paper looks briefly at these newer areas of collaboration and the potential for the Bank to contribute to the design and scaling up of new innovations that can bring significant development benefits to China.