As part of its efforts to reduce floods in the Yangtze River basin, the Government of China (GOC) is implementing a series of soil and vegetation conservation programs in the upper Yangtze River basin. In an effort to further increase the benefits of these measures, the GOC plans to implement an Ecosystem Function Conservation Areas (EFCAs) program, that will not only increase water retention capacity and reduce sediment loads, but will also provide global benefits in biodiversity, carbon sequestration, sustainable land management and Integrated Ecosystem Management (IEM) in the upper Yangtze River basin. The GOC is most interested in participatory IEM as a sustainable mechanism to help reduce poverty and balance the various environmental benefits and costs. The project uses the incremental cost approach to help the GOC set up a system of EFCAs with multiple environmental benefits in the upper basin of the Yangtze River. The main objectives include: (i) To complement national efforts to design a system of EFCAs ensuring the protection of global environmental values; (ii) To establish a management-oriented monitoring and early warning system to detect gains and losses of ecosystem functions in EFCAs and protected areas; and (iii) To help establish two demonstration sites showing how EFCAs can actually work and interact with the monitoring and early warning system. The two demonstration sites will also show how to alleviate poverty, increase water retention capacity and reduce sediment loads, coordinate sector programs, protect biodiversity, and increase carbon gains in an integrated manner. In each province where a demonstration site is located, a committee with representation from all major stakeholders, which is presided by the provincial government will coordinate all activities in the EFCAs. The GOC will replicate project results throughout the upper basin of the Yangtze River in the future, based on the results of the demonstration activities.