THE ASIAN DEVELOPMENT BANK’SROLE IN PROMOTING CLEANERPRODUCTION IN THE PEOPLE’SREPUBLIC OF CHINA

Aminul Huq, Bindu N. Lohani, Kazi F. Jalal andEly A. R. OuanoAsian Development Bank

The People’s Republic of China (PRC) has the fastest growing economy inthe world and is the third largest producer and consumer of energy. At thesame time, the PRC’s industrial sector contributes heavily to air and waterpollution. Because of the linkages between the production and use of energyand environmental degradation, the PRC, with the active support of bilateraland multilateral aid agencies, including the Asian Development Bank (ADB),is adopting measures that link economic growth to improvements in the environ-ment. The PRC is pursuing a two-pronged strategy that involves implementingpriority investment programs and promoting economic reforms. The ADB’sexperience shows that the concept of cleaner production (CP) has been widelyaccepted, but the widespread adoption of CP requires a new way of thinkingand new management capacities. In this regard, the PRC is at an early stageof promoting CP, and inadequacies in coordination among relevant agenciesremain a key obstacle. To support CP activities, the ADB is participating ina cluster of activities within China that include policy development, capacitybuilding, and financing environmental investments. This article describes theADB’s current efforts to promote CP in PRC and analyzes the effectivenessof those efforts. 1999 Elsevier Science Inc.

Introduction

Currently, intense air and water pollution, inefficient resource utilization,and a scarcity of some key natural resources plague the People’s Republicof China (PRC). These problems are directly linked to the rapid growthof industry, whose value added has grown by more than 12% in recent

Address requests for reprints to: Aminul Huq, Asian Development Bank, 6 ADB Avenue, Mandaluyong,0401 Metro Manila, Philippines.

ENVIRON IMPACT ASSESS REV 1999;19:541–552 1999 Elsevier Science Inc. All rights reserved. 0195-9255/99/$–see front matter655 Avenue of the Americas, New York, NY 10010 PII S0195-9255(99)00029-3

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years (Asian Development Bank 1998a). The industrial sector is the mostsignificant pollution source, discharging 55% of the PRC’s total wastewaterand emitting 78.9% of total sulfur dioxide (SO2) and 83.6% of total sootemissions in 1997.1 State-owned enterprises (SOEs) and town and villageindustrial enterprises (TVIEs) are key industrial polluters, with the amountof pollution generated from TVIEs increasing rapidly due to their fast-paced growth. For example, the amount of chemical oxygen demand (COD)discharged from TVIEs in 1995 was 3.5 times the comparable 1985 figure(Liu et al. 1997).

The adverse environmental impact caused by the production and use ofenergy, much of it in the form of coal, has reached unacceptable levels.Air quality is poor in virtually all of the PRC’s large cities and industrialareas, primarily due to the widespread use of low-quality coal. Householdsconsume about 20% of the coal in the PRC and are a major source ofurban air pollution. The industrial sector also contributes heavily to airpollution because of the low combustion efficiency (50% to 60%) of mostof the boilers in the country. A study by Foell et al. (1995) shows that 44of 92 Chinese cities surveyed in 1995 had precipitation with pH values lessthan 5.6. Another study shows that the central and southeast regions ofthe PRC are the areas with the most serious acid rain problem (NorwegianInstitute for Water Research, 1997).

The average energy utilization efficiency rate in China is 30% to 40%;the average rate of mineral resource utilization is 40% to 50%; and thepercentage of final product output divided by raw material input is only20% to 30%. Annually, the PRC faces a shortage of water resources thatamounts to approximately 50 billion tons, but the amount of water usedper unit of product ranges from 5 to 10 times the amount used to producesimilar products in developed countries (Asian Development Bank 1998b).

Obsolete and inefficient technology in the steel, chemical, and buildingmaterial sectors are key factors contributing to low energy utilization andhighly polluting emissions and effluents. Poor enterprise management maybe another important factor that contributes to low production efficiencyand high levels of pollution. Based on Asian Development Bank (ADB)projects that have been conducted in the PRC, it has been noted that morethan half of the pollution discharges can be reduced at many enterprisesthrough strengthening management rather than upgrading equipment.

The PRC’s primary commercial energy consumption increased by 5.3%annually from 1980 to 1997, reaching 1.44 billion metric tons of coal equiva-lent (NEPA 1997). This makes the PRC the third largest energy user afterthe US and Japan. Although per capita energy consumption in the PRCis low—about 700 kg oil equivalent, or 40% of world average—the PRC’s1997 GDP was almost double that of the ADB’s developing member coun-tries. Given that energy and raw material usage will continue to grow

1Data from State Environmental Protection Administration (SEPA).

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rapidly to keep pace with economic growth, unless technology and manage-ment levels are improved, the PRC’s environmental quality will furtherdeteriorate and there will be increased economic losses due to low produc-tion efficiency.

The PRC’s Ongoing Environmental Protection Efforts

To address its environmental problems, the PRC’s government has intro-duced numerous policies and regulations for environmental protection andindustrial technology renovation, beginning in the early 1980s. However,environmental policies and regulations focused mainly on end-of-pipe treat-ment and were not integrated effectively with industrial and technologyrenovation policies aimed at enhancing the efficiency of industrial produc-tion. End-of-pipe methods also typically impose heavy financial burdenson enterprises and, consequently, encourage enterprises to prefer payingfees for exceeding pollutant emission standards rather than investing in thepollution control technology necessary to meet local emission standards.Also, during the 1980s, some aspects of waste minimization, such as waterrecycling and other raw materials, were initiated. However, strategies usingwaste minimization or cleaner production (CP) concepts that emphasizedeconomic efficiency through reducing wastes throughout the whole produc-tion process were not introduced and implemented in a systematic manneruntil 1992.

CP is a conceptual and procedural approach to production that demandsthat all phases of the lifecycle of a product or a process be addressed withthe objectives of prevention and minimization of short- and long-term risksto human health and to the environment. This concept includes initiativessuch as better management and good housekeeping; substitution of toxicand hazardous materials; reduced use of raw materials, water, and energy;process and product modifications; and internal reuse of wastes and emis-sions. It is a preventive approach to environmental management that seeksto reduce reliance on downstream, end-of-pipe solutions to environmentalproblems by looking upstream for the reformation and redesign of processesand products.

Following the 1992 United Nations Conference on Environment andDevelopment, the government adopted a 15-year program for sustainabledevelopment in the form of a document entitled Agenda 21. This plan forthe PRC’s sustainable development in the 21st century emphasizes CP as astrategy for achieving sustainable development, particularly in the industrialsector. The program covers four major themes: (i) strategies for sustainabledevelopment; (ii) sustainable development of the economy; (iii) sustainabledevelopment of society; and (iv) sustainable management of resources andprotection of the environment.2 The key components of the operational

2The PRC’s National Conservation Strategy and Policy Statement on Environment and Developmentoutlining the Government’s environmental strategy up to the year 2000 as presented in the United NationsConference on Environment and Development (the Earth Summit) held in 1992.

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plan for Agenda 21 in the PRC include improving efficiency in energyutilization, streamlining energy conservation, introducing environmentallyfriendly technologies, and managing toxic and hazardous wastes (StateCouncil 1994).

Since the 1980s, the government has initiated several measures to pro-mote the upgrading of the PRC’s industrial technology. Industrial facilitiesthat are highly inefficient and that cannot be profitably upgraded are tar-geted for closure. During 1996 and 1997, some 66,000 inefficient and highlypolluting factories were closed down, and steps have been taken to encour-age and assist enterprises to upgrade their facilities with modern, efficient,and environmentally sound clean technologies (Asian Development Bank1998b). The chemical, metallurgical, building materials, and light industrysectors have been selected as targets for implementing CP (Asian Develop-ment Bank 1998b).

The Response from Industry

The PRC industry’s response to the government’s promotion of CP hasnot been as quick as the government had hoped. For example, althoughenhancing the efficiency of industrial production was set as the main devel-opment objective in the Eighth Five-Year Plan (1993 to 1998), investmentin industrial sectors during that period still focused on production expansionrather than technology renovation (Asian Development Bank 1998b). Two-thirds of total production inputs were used for production expansion, anincrease of 4% from 1990 (Asian Development Bank 1998b). Capital invest-ment in technology renovation, as a percentage of total capital investmentduring the Eighth Five-Year Plan period, was 18%: 2% less than technologyrenovation investment in the previous plan period.

Studies financed by the ADB and the World Bank have identified severalobstacles to implementing CP in the PRC. At the national level, policiesand legislation are inadequate because they do not provide sufficient incen-tives for CP. Certain aspects of the PRC’s general business climate arenot conducive to CP adoption. For example, despite significant economicreforms and deregulation, prices for certain commodities, most notablynatural resources and energy, are still set or regulated by the government.When the prices are set too low, enterprises tend to place little emphasison cost or resource efficiency because they lack incentives to adopt CP.Industrial management expertise, particularly the capability to assess theneeds and opportunities for CP, lags behind the general industrial reformprogram and constitutes a significant hindrance to CP adoption. Yet policiesfor enhancing industrial management expertise in areas affecting CP haveproven inadequate.

At the sector and enterprise levels, lack of know-how and managementcapability, lack of access to technology and technological information, lack

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of commitment at top levels, and lack of funding for CP audits and theadoption of new technology are the main challenges. The specific character-istics of industrial environmental regulations and the way environmentalrequirements pertaining to industry are implemented have not been condu-cive to CP. Many industries have found means to subvert the intent ofthese policies and regulations. In fact, some existing environmental pro-grams favor end-of-pipe treatment instead of CP. An example is the PRC’spollution levy system. Revenue from the levy is returned to the industryexplicitly for waste treatment facilities.

The ADB’s Strategy

Since 1993, the government of the PRC, with the support of developmentagencies, has undertaken several initiatives to promote CP technology andpractices. Adopting CP forms a basic element of the government’s strategyof protecting the environment while achieving economic growth.

The ADB currently supports a cluster of activities related to CP develop-ment. The broad objectives of these activities are the following: (i) todevelop of policy and regulatory frameworks that facilitate the introductionand adoption of CP in a cost-effective manner; (ii) to build the capacity ofthe relevant governmental agencies for improving environmental manage-ment; and (iii) to finance a portion of environmental investments, includingCP development.

Projects that focus on improving energy efficiency and environmentalprotection are accounting for a growing share of ADB’s lending in thePRC. In terms of loan amounts, the PRC accounted for 20% of total ADBlending in 1997. Between 1987 and 1997, the ADB made 12 loans to thePRC totaling over $1.5 billion for industrial process restructuring and urbanenvironmental improvement projects. Specifically, the ADB-funded proj-ects focused on water supply, clean energy, wastewater treatment, industrialrelocation, and pollution abatement. ADB’s CP projects have covered keyindustrial sectors such as the chlor-alkali, fertilizer, cement, steel and non-ferrous metals, construction materials, organic chemicals, and plastics.

In addition to project-specific loans, the ADB has provided the PRCwith more than 50 technical assistance grants totaling more than $24 millionto support capacity building and the strengthening of environment manage-ment. Technical assistance grants have covered areas such as greenhousegas emissions, impacts of global climate change, and sustainable technol-ogy development.

The ADB’s Activities in the PRC

The PRC government’s efforts to promote CP including training, policydevelopment, CP demonstration projects, and the establishment of centersfor the transfer of CP data and expertise. The government has implemented

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preliminary reforms and adjustments in existing environmental regulations,and it has developed policies aimed at promoting the continued implemen-tation of CP. In addition, training and demonstration projects exemplifyingthe benefits of CP have been executed in a number of factories in severalChinese industrial sectors (i.e., electroplating, chemicals, textile, food pro-cessing, and cement). Another significant accomplishment has been theestablishment of a national CP center and an information sharing networkresponsible for providing CP training and consulting services, which theADB has supported financially.

Adoption of clean technologies is a sustainable strategy because it servesto reduce or eliminate industrial pollutants as well as save energy andmaterials; it also decreases the amount of resources used in manufacturingand waste disposal. The government believes that adoption of CP, and itsassociated environmental benefits, will come about through cost-effectiveinvestment, policy reform, and institutional development. To further pro-mote CP development, the government intends to formulate national-levelpolicies and regulations that will encourage the introduction and adoptionof such technologies in urban areas, as well as in small- and medium-sizedenterprises. A well-designed policy and institutional framework, along witha national network for environmentally sound technology transfer, is essen-tial to promote the widespread application of CP.

The four examples following introduce typical CP projects supported bythe ADB. The first two descriptions illustrate the ADB’s investments inCP projects. The third example highlights the ADB’s role in supportingcapacity building for CP; and the fourth example describes some of theADB’s policy development work.

Financing Industrial Projects

The ADB’s investment activities directed at supporting CP projects areillustrated by the Hefei Chemical Works (HCW) and the Hefei Iron andSteel Company (HISC), two of six subprojects of the ADB-funded AnhuiEnvironmental Improvement Project (Asian Development Bank 1996a).Of the project’s total cost ($336 million), the ADB is providing $140 million.The rest of the project funds comes from the China Construction Bankthe Hefei Construction and Investment Corporation. ADB is funding $14million of the $30 million total cost of the HCW subproject, and $44 millionof the $105 million of the HISC subproject.

HCW project. The product lines of HCW are based on caustic soda andchlorine, hydrogen, and oxygen, which are byproducts of caustic soda manu-facturing. The HCW plant was built in 1957 and has an annual productioncapacity of 75,000 tons of caustic soda, 24,000 tons of calcium carbide,

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25,000 tons of polyvinyl chloride (PVC) resin, 6,000 tons of ferric chloride,30,000 tons of liquified chlorine, 5,000 tons of hydrochloric acid, 100,000m3 of acetylene, and 8,000 tons of pesticide. Caustic soda is producedby electrolytic decomposition of sodium chloride using asbestos-coatedgraphite anodes and graphite cathodes, commonly called the diaphragmprocess. HCW’s wastewaters are generated primarily from the spent saltsolution and the asbestos coating workshop. Prior to the ADB project, thewastewater and solid waste contained asbestos, tar, lead, and salt. Vinylchloride monomer also was generated in trace quantities at the PVC manu-facturing line.

The ADB project involved replacing the existing diaphragm processwith a membrane-based process.3 This technology substitution involved theconstruction of a 45,000 ton/year caustic soda plant using the membraneprocess, the decommissioning of the existing diaphragm process equipment,decontamination of the soil, disposal of contaminated soil and equipmentin a secured landfill, and expansion of the existing wastewater treatmentfacilities.

As a result of the technology substitution project, HCW has enjoyedenergy conservation and productivity benefits. The membrane productionprocess requires less energy, and it provides a higher yield of caustic sodaper unit of salt input than the old diaphragm process. In addition, thecaustic soda produced in the membrane process does not add asbestos,lead, or heavy metals to the finished product.

Overall, the project’s environmental impacts have been highly positive.The expansion and upgrading of the wastewater treatment facilities allowedHCW to recycle cooling water and wastewater. This reduced the wastewatervolumetric flow rate by a factor of 15, from 37,000 to 2,400 m3/day. Theexpansion of wastewater treatment facilities for the project involved install-ing a biological wastewater treatment process followed by coagulation,flocculation, sedimentation, and filtration. These new facilities reduced theCOD in the effluent from 142 to 35 mg/L; phosphorus from 0.94 to 0.1 mg/L; total nitrogen from 11 to 9 mg/L; and vinyl chloride monomer form 0.16to 0.1 mg/L. The ADB-funded project also eliminated asbestos, lead, andtar from HCW’s solid and liquid wastestreams (Asian DevelopmentBank, 1996b).

HISC project. HISC produces 500,000 tons of pig iron, 700,000 tons ofsteel, and 400,000 tons of hot and cold rolled steel annually. The main rawmaterials used in the manufacture of those products are iron ore, cokingcoal, and lime. The factory operates a 160,000 ton/year coking plant, but

3The membrane process is primarily a physical method of separating the sodium hydroxide from theunreacted salt using semipermeable membrane. As a physical method of separation, toxic and hazardoussubstances are eliminated in the manufacturing process.

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actually requires 500,000 tons coke/year to support its operations. Conse-quently, the factory purchases 340,000 tons coke/year from small cokingplants in neighboring provinces.

Prior to the ADB-funding project, HISC’s coking plant operation was amajor source of air and water pollutants as well as a safety hazard. Thebyproduct recovery system was inefficient, and large quantities or aromatichydrocarbons, sulfur dioxide, ammonia, tar, and coking gases often wouldescape from the coking oven. The atmosphere within 100 m of the cokingplant contained high levels of ammonia, SO2, and aromatic hydrocarbons,which are known carcinogens.

Before the ADB-funded project was implemented, the wastewater treat-ment plant at HISC had been undersized. The main pollutants in thewastewater were suspended solids, a mixture of organic impurities ex-pressed as COD, ammonia, phenols, and cyanide. Prior to the ADB project,the wastewater was aerated without proper treatment to stabilize the ammo-nia, causing ammonia to be discharged into the atmosphere. The groundsurrounding the coking plant was covered with a thick layer of soot and tar.

The ADB project involved replaced the existing 150,000 ton/year cokingplant with a 600,000 ton/year coking plant; upgrading existing wastewatertreatment facilities; and reusing treated water for quenching and coal wash-ing. In addition, dust control facilities were installed in the coal and cokestockyards to reduce fugitive dust emissions. The dust control facilitiesutilized the effluent from the wastewater treatment plant. The ADB projectalso included the decommissioning of the existing coking facilities anddecontaminating the soil around the existing facilities.

The overall environmental impact of the project has been positive. Thenew coking plant has reduced the air emissions and recovered useful by-products. For example, implementation of the ADB-funded project resultedin the recovery of 27,400 tons of tar, 7,000 tons of benzene, 1,300 tons ofsulfur, and 2,674 million m3 of coking gas annually. These pollutants wouldhave been discharged to the atmosphere from existing outdated facilities,either at HISC’s own plant or at the small “dirty” plants from which HISCpurchased 340,000 tons of coking gas annually.

The manufacturing facilities and environmental conditions in the smallcoking plants where HISC currently purchases coking gas are primitiveand more polluting than those at HISC. The ADB-funded project, whichenabled HISC to manufacture its own coke as opposed to purchasing itfrom outside factories, eventually forced the closure of a number of small,polluting coking plants in the surrounding area. This change has resultedin a net reduction in greenhouse gas emissions. Expansion of the wastewatertreatment plant at HISC also reduced the amount of cyanide, phenols, andaromatic hydrocarbons in the factory’s effluent discharged to the Nan FeiRiver (Asian Development Bank, 1996b).

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Supporting Capacity Building

In addition to investing in specific environmental projects, the ADB’s effortsto promote cleaner production in the PRC have included projects aimed atcapacity building in various government agencies. One of the ADB’s maincapacity building projects has been its involvement in the establishment ofthe Centre for Environmentally Sound Technology Transfer (CESTT) basedin Beijing that focuses on making information about CP more accessible tosmall- and medium-sized enterprises (Asian Development Bank, 1995). Theneed for this project arose because the ADB’s CP demonstration projectshave been mostly confined to large industrial plants, due to limitations inthe ADB’s lending policy to the PRC. In addition, existing business lawshamper the identification, evaluation, and disbursement of loans for small-and medium-sized enterprises.

To overcome these constraints, as well as to disseminate information onsuccessful experiences, the ADB extended a technical assistance grant tothe PRC’s Ministry of Science and Technology to establish the CESTT.The Center provides these smaller enterprises with information on CPtechnology, technology screening, intellectual property rights management,and contract management, as well as other consulting services. This particu-lar capacity building effort was carried out over a period of 1 year byinternational consultants working with domestic associates. The total costof the technical assistance was $1.1 million, of which $550,000 was fundedby the ADB.

Technology screening and consulting services are a particularly importantactivity of CESST. This is notable because the wide range of CP informationavailable from various sources often has overwhelmed Chinese enterprisemanagement with information. Often times, the potential technology users,particularly in small- and medium-sized enterprises, do not have the capa-bility to select and evaluate the technologies appropriate for solving theirproblems.

Improved Policy Dialogue

In addition to supporting efforts that will help Chinese enterprise staffteach themselves about CP and its potential benefits, the ADB supportsactivities aimed at developing national policies that promote the adoptionof CP-related activities. As an example, the ADB recently provided theChinese government with a cluster of technical assistance projects aimedprimarily at supporting the use of CP technology and its associated pollutionreduction. This overall objective will be accomplished through: (i) improv-ing the policy framework by eliminating current barriers and constraints;(ii) building the capacity of concerned agencies to strengthen environmentalmanagement; (iii) improving access to information regarding CP; and (iv)

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developing new project financing concepts and market-oriented incentivesto introduce CP in small- and medium-sized enterprises (including TVIEs).This technical assistance is estimated at $4.4 million, of which $3.5 millionis an ADB grant.

The technical assistance will be implemented by six agencies, and it willbe provided over a 3-year period beginning in mid-1999. Funds will be usedto engage 60 person-months of international consultants and 169 person-months of domestic consultants. This cluster consists of six interrelatedsubprojects: (i) policies for promotion of CP; (ii) national network for CPtransfer; (iii) legislative support for CP; (iv) CP development; (v) environ-mental management for clean technologies in TVIEs; and (vi) financingmechanism for clean technologies in TVIEs. The technical assistance clusteris expected to help improve national-level policies and to create institutionalcapacity and financing mechanisms for the promotion of CP technologiesfor sustainable environmental development.

Lessons from the ADB Experience

The ADB’s experience with project implementation in the PRC shows thatthe concept of CP (or waste minimization) has been widely accepted andis increasingly being used by the PRC’s government officials, particularlyat the national level. The PRC’s industrial enterprise managers have startedto realize that a large proportion of wastes and pollutant discharges stemfrom process inefficiencies. They also recognize that clean technologies canminimize pollution loads and at the same time increase economic benefitsand industrial competitiveness. Environmental protection agencies at bothnational and local levels have started to develop CP strategies by shiftingtheir focus away from end-of-pipe treatment, the traditional waste manage-ment approach, to emphasizing strategies that promote waste source re-duction.

However, the ADB’s experience with environmental projects indicatesthat CP promotion is not an easy task. Adopting clean technology andmaintaining operations in a sustainable way goes far beyond the introduc-tion of new equipment. Instead, it requires a whole new way of thinkingand new management capacities at the policy and operational levels, andin both the technical and financial sense. With regards to all these require-ments, the PRC is still in a very early stage in promoting CP. The PRC’sgoals can be achieved only if it develops appropriate policies and legislation,establishes new financial mechanisms, and builds capacity in key areas.

In addition, the ADB’s experience with project implementation in thePRC shows that the capacity for planning and implementing projects isstrong for most executing agencies. Both environmental agencies and eco-nomic departments are enthusiastic in implementing projects for CP promo-tion. However, inadequacy in coordination among relevant agencies is a

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key obstacle to the success of environmental projects because CP projectsare often multidisciplinary in nature and require a high level cooperationamong government agencies. Weakness in interagency coordination fre-quently leads to “turf wars” among agencies. This is because the financialresources needed to implement environmental plans are not well definedbetween the agency responsible for developing the project plans and theagency responsible for appropriating project funding. For example, infor-mation systems established under the CP projects implemented by localscience and technology departments often do not meet the needs of targetedindustries affiliated with local economic and trade commissions becausethose agencies fail to coordinate efforts. CP promotion is a result of interac-tions among the State Development Planning Commission (responsible forpolicy and budget), the State Economic and Trade Commission (responsiblefor industries), the National People’s Congress (responsible for legislation),the Ministry of Science and Technology (responsible for technology trans-fer), SEPA (responsible for environmental management), and the Ministryof Agriculture (responsible for TVIE management). Under these circum-stances, improvement of actions and coordination among these key agenciesis essential to effectively promote CP.

The authors wish to acknowledge the assistance of P. Abeygunawardena and R. Barba inpreparing the paper.

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Asian Development Bank. 1998b. Proposed Technical Assistance Cluster to thePeople’s Republic of China for the Promotion of CP (September).

Asian Development Bank. 1996a. Report and Recommendation of the Presidentto the Board of Directors on Proposed Loans and a Technical Assistance Grantto the PRC for the Anhui Environmental Improvement Project (October).

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Asian Development Bank. 1995. Technical Assistance to PRC for Establishing aCenter for the Transfer of Environmentally Sound Technology (October).

Foell, W., Amann, M., Carmichael, G., Chadwick, M., Hettelingh, P., Hordijk, L.,and Zhao, P. 1995. Rains-Asia: An Assessment Model for Air Pollution in Asia,Final Report. Manila: World Bank/Asian Development Bank.

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NEPA (National Environment Protection Authority). 1997. China EnvironmentYear Book. Beijing.

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