The ADB Board of Directors have approved the loan for the Shanxi Small Cities and Towns Development Demonstration Sector Project. It will fund measures to improve infrastructure, municipal services, and the environment in about seven cities and towns in Shanxi. It is also expected to provide a model for potential replication in other small towns and cities around the country, and mirrors similar projects being undertaken in Hebei and Liaoning provinces, following ADB-financed technical assistance.

The PRC's economic boom has been supported by a surge in migrants from rural areas into major cities but this has put a severe strain on services, infrastructure, and the environment, and created an urban-rural income gap. To counter the trend, the government will develop secondary towns and cities to help absorb the millions of migrants that flock to urban areas each year in search of work. Smaller centers in provinces, such as Shanxi, offer great potential to provide new jobs but typically lack the necessary infrastructure or services, and also suffer from pollution.

“The project will increase the economic, social and environmental sustainability of small towns and cities by improving urban infrastructure and municipal services which will help attract investment into employment-intensive industries and services, improve living conditions and the environment, and extend the benefits of growth to all residents,” said Amy Leung, Director of Urban and Social Sectors in ADB's East Asia department.

In the initial stage, the project will carry out improvements in Pingyao and Youyu counties, and Wutong town, with other centers to follow. In Pingyao, assistance will be given to improve the water quality of Huiji River, which will aid public health and support tourism development in the county, which is located in the heart of a major cultural tourism corridor. In Youyu, the focus is on environmental improvements and basic infrastructure to attract agroprocessing, light industry and service sector firms, who can in turn provide jobs for migrant workers.

In Wutong, a new urban housing area will be developed for up to 30,000 residents upwind of the town's coke and aluminum plants, and investments will be made in natural gas supply to help residents switch away from coal-fired stoves. Schools will be built to develop workforce skills that match market needs, marking the first social services component to be included in an ADB-supported project in PRC. Assistance will also be given to upgrade water supplies, solid waste management, and roads.

Support for the environment is a key element of the project. Investments will be made in transmission and distribution facilities for natural gas, to help cut coal-based fuel emissions, while the ADB-administered Multi-Donor Trust Fund under the Water Financing Partnership Facility is funding governance and financial management improvements at water and wastewater agencies. The project will provide better urban services and facilities to around 250,000 people in the core project cities and towns, while about 380,000 people in surrounding rural areas will gain from new employment opportunities and economic development.

The loan, from ADB's ordinary capital resources, covers 45% of the total project cost of $224.7 million. It has a 26-year term, including a grace period of six years, with interest determined in accordance with ADB's LIBOR-based lending facility. County and city governments will contribute $124.5 million with WFPF, funded by the governments of Australia, Austria and Norway, supplying a $250,000 grant.

Shanxi provincial government is the executing agency for the project, which is due for completion around the end of 2015.#