China Improving Public Expenditure Management in Rural China Development Objective:  To assist the Government of China (GoC) in improving its expenditure management in the area of public service delivery in selected rural counties.  More specifically, assistance would be given to two key departments (Social Development Department and Rural Economy Department) of the National Development and Reform Commission (NDRC) to operationalize and pilot specific activities articulated in previous Bank analytical work on improved rural public expenditure management. Components, Activities and Outcomes: Component 1.  Improving Local Public Expenditure Management.  Before launching a full scale reform program to improve its expenditure management for public service delivery in rural areas, the GoC would like to test a number of the recommendations from the Bank's AAA in a reform pilot in selected provinces and counties.  This IDF component would develop such a reform pilot in six counties in two to three provinces (one coastal province, once central province, and one Western province).  The pilot itself would be financed through government funds.  By providing lessons learned which are tested on the ground, the pilot would support NDRC's overall reform program for improved fiscal management.  The specific outcome of the component would be an improved and more efficient public expenditure management system in the pilot counties that could be rolled out in other counties and provinces and eventually be adopted nation wide.  More specifically, the component intends first to carry out a core diagnostic of the pilot counties that would be used for detailed preparation of the reform pilot plan.    1.1 Core Diagnostic of Pilot Counties.  A detailed baseline diagnostic is needed at the local levels in the pilot counties of the overall flow of central-level funding and the budgeting processes in order to develop a successful reform pilot.  Also there is a need to develop a replicable performance assessment framework, creating a simple set of indicators for public sector management performance in the relevant areas.    1.2 Reform Pilot Plan.  Following the core diagnostic, a detailed reform proposal and implementation plan would be prepared for: organizational structures; processes for budgeting and financial management; involvement of various stakeholders (including the public), etc. Component 2.  Building Capacity for Implementing Reform Pilots.  In order to be able to implement a successful reform pilot, extensive training and learning needs to take place at all stakeholder levels.  Therefore, this component would design a comprehensive capacity building program addressing how to: (i) enable improved allocation and efficiency of public expenditures; (ii) enhance financial accountability; and (iii) enable establishment and utilization of participatory results-oriented monitoring and evaluation (M&E) of public expenditure management.  A variety of training and learning activities would be targeted at agencies and staff at all government levels, including county, township and public services units (PSUs) as well as village committees and village groups in the pilot counties.  The outcome of this component would be that agencies and staff involved in public expenditure management in NDRC and in the pilot areas be more capable to carry out their duties.  More specifically, the component intends to prepare a capacity building plan and pilot selected capacity building activities.    2.1 Capacity Building Plan.  A detailed capacity-building plan for the implementation of the reform proposals in the selected pilot counties would be developed.    2.2 Pilot Capacity Building Activities.  This component would pilot capacity-building activities by preparing training materials and training trainers.  In addition, selected pilot training activities would take place in on or two pilot counties to fine-tune the capacity building program before extending it to all reform pilot counties together with the reform pilot activities. Component 3.  Monitoring and Evaluation.  M&E activities would be designed and launched to support the Rural Economy Department's efforts to improve their central capital and local expenditure planning and execution in pilot areas as well as to ensure good capturing of lessons learned from the reform pilot.  The outcome of this component would be increased transparency and fiscal accountability for public expenditure management in the pilot areas.  More specifically, the component intends to assess and strengthen the pilot counties M&E capacity for public expenditure management; and develop and launch an M&E pilot for the NDRC's rural capital investments.    3.1 Public Expenditure Management M&E Assessment and Strengthening.  To prepare for the launch of the reform pilot, the M&E capacity for public expenditure management, including planning, budgeting, fiscal issues (including internal and external auditing), inputs and outputs, outcomes (results), and publishing/dissemination would be assessed in the pilot counties.  Following the assessment, an M&E strengthening program would be put in place in the reform pilot counties.  This would include developing and introducing participatory results-oriented M&E approaches for public expenditure management in the pilot counties, with corresponding changes at all other government levels, including at the national level.    3.2 Rural Capital Investment M&E Pilot.  The IDF grant would support the development and launch of an M&E pilot for NDRC's rural capital investment portfolio and administration.  NDRC administered capital investments for rural development in 2006 were over RMB 60 billion, leveraging an even greater amount, and rapidly increasing.  A substantial strengthening of the capacity of NDRC and their lower-level agencies is needed.  Output would consist of:  (i) detailed design of a pilot Management Information System (MIS), including technical documentation; (ii) purchase of technology for the purpose of establishing the MIS in the pilot counties and the Rural Economy Department of NDRC; and (iv) training for running the MIS. The IDF Grant would assist the Government of China (GoC) in improving its expenditure management in the area of public service delivery in selected rural counties. More specifically, assistance would be given to two key departments (Social Development Department and Rural Economy Department) of the National Development and Reform Commission (NDRC) to operationalize and pilot specific activities articulated in previous Bank analytical work on improved rural public expenditure management.