Fujian Xianyou Mulan River Basin Integrated Ecological Improvement and Environmental Management Project The proposed project will improve the delivery of the People Republic of China's (PRC) flagship rural vitalization strategy by cultivating institutional development solution. It aims to overcome the sustainability challenge in rural development and environmental management. 

The proposed project particularly aims to assist Xianyou County in Putian City, Fujian Province of the PRC in developing an integrated solution to flood control, ecological restoration, and water quality improvement of Mulan River, taking into consideration of climate change and environmental management to contribute to the achievement of the government's goal of fostering green, sustainable, resilient, and inclusive growth for rural development.

The project will promote financial innovation and an integrated approach for rural vitalization and will bring direct benefits to inclusive development, environmental conservation, and ecological preservation, while targeting global and public goods, and inclusive growth. The project will have three outputs:

Output 1: Innovative financing mechanism piloted. Investments in flood management, ecological restoration, and water quality improvement will reduce physical risk and improve quality of life. This will increase land value and property prices. The funding for investments can be generated from capturing the increase in land value. This output will pilot an innovative and sustainable financing mechanism primarily using land value capture tools to address insufficient long-term funding for investments. The output will include (i) tailoring a method to capture land value increase and/or other potential revenue sources for funding the investments, taking consideration of governance and oversight to ensure inclusiveness; and (ii) establishing a market-oriented financing mechanism based on the revenue generated from the land value capture and/or other sources. The capture of land value increase and/ or other revenue sources will provide a stable source of funding for investments in flood management, ecological restoration, and water quality improvement; and the market-oriented financing mechanism will render a sustainable financial incentive to mobilize private sector to participate and invest in environmental management.

Output 2: Institutional capacity for environmental management strengthened. This output will strengthen the Xianyou County Government's (XCG)s capacity in ecological restoration and management, incorporating climate change and environmental management consideration. It includes (i) integrating climate change and environmental management with flood control, ecological restoration, cultural heritage conservation, and water quality improvement; (ii) strengthening institutional capacity in planning and implementing an integrated approach; (iii) raising awareness of climate change and environmental risks among local governments, communities, businesses, and stakeholders; and (iv) developing and operationalizing river chief smart water system for monitoring, evaluation, and decision support of the integrated approach for the upper and mid reaches of the Mulan River Basin.

Output 3: Flood management, ecological restoration, sanitation, and water resources improvement systems installed. This output will implement (i) flood risk mitigation and water resources improvement measures with a combined grey and green solutions; (ii) ecological conservation and restoration, including wetland placing, greening, and landscaping; (iii) inclusive sanitation which aims to increase access to appropriate sanitation systems, including for public use, whether sewered or non-sewered, centralized or decentralized and which considers the most appropriate and innovative technology and service delivery method; (iv) agricultural nonpoint source pollution control; (v) improvement and management of the forest and stand structure; and (vi) cultural heritage conservation for the Mulan River, including restoration of historical bridges and houses. To promote private, institutional and commercial finance, financing facilities may be established as appropriate to deliver this output.   

These outputs will result in the following outcome: flood and environmental risks in the Mulan River mitigated. The project will be aligned with the following impact: quality of rural life enhanced.

The project will address two specific institutional issues on environmental management: financing and capacity strengthening. The use of land value capture method will be a demonstrative financial innovation to establish a sustainable financing mechanism for environmental management. The capacity strengthening will reinforce know-how and coordination for planning and implementing integrated approach to environmental management. The experience and knowledge gained through this project can be replicated in other rural areas in the PRC and in the region.

The project will contribute to the PRC?'s goal of building a harmonious and prosperous society through environmentally sustainable growth. The project is also consistent with (i) the decision of the Third Plenary Session of the 19th Central Committee of the Communist Party of China held in Beijing in February 2018 which highlights natural resources and environmental management and public service management; (ii) the Asian Development Bank's (ADB)s Strategy 2030, of which (a) addressing remaining poverty and reducing inequalities; (b) tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability; and (c) promoting rural development and food security, are the key operational priorities to guide the project objectives;  and (iii) ADB?'s country partnership strategy for the PRC, 2016?-2020. The project is also consistent with ADB?'s Water Operational Plan, 2011?-2020.

The project design will incorporate lessons from previous ADB-financed projects and policy-oriented studies on water resources management, environmental and ecosystem improvement, wetland and lake management and restoration, and rural development in the PRC and other developing member countries. Relevant lessons from past and ongoing ADB support in the PRC are (i) application of integrated approach; (ii) use of both structural and nonstructural measures; (iii) revenue generation and full-cost recovery options; (iv) improving data information systems; and (v) institutional coordination improvement.