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Poverty reduction programs' institutional arrangements, strategy, and funding (I)
2003-07-24
China's poverty reduction program comprises a wide variety of actors, programs and funding channels. The Chinese Government has a strong commitment to poverty reduction, and most government ministries and agencies have special poverty reduction responsibilities and projects.
The Ministry of Civil Affairs provides disaster relief and income maintenance support, and coordinates the distribution of relief grain through the Grain Bureau System. The Ministry ofEducation and the Ministry of Public Health administer some special programs to improve the education and health status of the poor. ABC offers subsidized loans for poor area development through a variety of funds administered by provincial bank branches and their networks of county- and lower-level banks. The Ministry of Finance (MOF) provides grant assistance. The Regional Office of the State Development and Planning Commission (SDPC) administers a Food-For-Work Program, which assists with the building of roads and riverine transport, drinking water systems, irrigation works and other capital construction in poor areas.
In addition, most of China's more developed coastal provinces and major municipalities are now supporting poverty reduction activities in specific poor provinces and regions, and a number of other domestic organizations are also involved in such work In addition, international donors and NGOs have played an increasing role in China's poverty reduction program throughout the 1990s (UNDP 1997a).
The State Council's Leading Group Office for Poverty Reduction (LGPR) was established in 1986 to provide greater coherence to the large number of poverty reduction initiatives and, in particular, to expedite economic development in the poor areas. LGPR is also the key agency responsible for coordinating the nation's funding for poverty reduction programs. Central government funding for the poverty reduction programs totaled more than $2 billion in 1998, was scheduled to reach $3 billion in 1999, and expected to reach $3.2 billion in 2000. Since its establishment, LGPR and its executive agency, the Poor Area Development Office (PADO), has emerged as the principal advocate of China's rural poor. The central PADO comprises about 25 staff equally divided between six divisions (including the General, Policy. Research, Planning and Finance, Statistics, Social Poverty Reduction, and Public Information divisions). In addition to the central PADO, the State Council funds another four poverty reduction units which operate within the LGPR orbit: the China Development Foundation for Poor Areas (30 staff), the Foreign Capital Management Center (30 staff), the Training Center Office (18 staff), and the Economic Development Service Center (15 staff).
Most poor provinces, prefectures, and counties have all established Leading Groups and PADOs after the central model, and many townships now have at least one "designated person" to handle poverty reduction work. The Guizhou PADO system, for example, comprises 2,489 staff of which 1,365 work full time on poverty reduction activities. The provincial PADO comprises 29 full time staff in five divisions. There are 106 full time staff at the prefectural level, and 420 full time staff within Guizhou's 48 nationally-designated poor counties. Within the 48 poor counties, some 555 townships have designated poverty reduction offices with 810 fill time staff. The structure and staffing of Sichuan's PADO system is very similar to that of Guizhou, except that there are fewer full time staff at the township level. While the Guizhou PADO system averages 1.5 full time staff for each of its poor townships, Sichuan has on average only 0.5 full time staff in each of its 752 poor townships. With the exception of some lesser programs under their immediate control, the LGPR system does not directly implement poverty reduction projects and activities. Instead, most poverty reduction projects and activities are managed or implemented by the agencies responsible for them. Rural roads constructed under the FFW program, for example, are implemented by local staff of the Transport Bureau.
(II)
While continuing the existing rural social and relief services, the poverty reduction strategy adopted during the Seventh Five Year Plan (1986-90) introduced a new emphasis on economic development programs in the poor areas. During this period, most of the government's subsidized loans for poverty reduction were channeled directly to poor households to develop agricultural production and agro-processing. The Government's commitment to sustained efforts to eradicate poverty also figured prominently in the 8th Five Year Plan (1991- 95). The 8th Five Year Plan re-confinned and extended LGPR's central role as the coordinating body responsible for poverty monitoring and research, and the management of both domestic funding and international assistance for poverty reduction. Based on the belief that poor households could not, on their own, make the best use of poverty reduction funding (because, it was believed, they lacked the necessary technical and management skills and could not achieve economies of scale in operation), it was decided that most of the low interest loan funds would be channeled to small enterprises (that is, "economic entities") instead of poor households.
Beginning in 1989, most of the low interest loan funding was therefore redirected toward collective enterprises and companies involved in agricultural production bases and the marketing of agricultural products.
The government's poverty reduction strategy gained greater definition through the 1994 National Plan for Poverty Reduction (8-7 Plan) which established the objective of lifting the majority of the remaining 80 million poor above the government's poverty line during the seven year period 1994-2000. The 8-7 Plan called for (a) assisting poor households with land improvement, increased cash crop, tree crop and livestock production, and improved access to off-farm employment opportunities, (b) providing most or all townships with road access and electricity) and improving access to drinking water for most poor villages, (c) universalizing primary education and providing basic preventive and curative health care, (d) graduating better-off counties in the coastal provinces from the newly-established list of nationally-designated poor counties, (e) improved management of available funding, including increased attention to the appraisal and financial viability of poverty reduction investment activities, greater recovery of loan finds and reduced leakage of poverty reduction funding to alternative activities, and (f) greater involvement and support from all government ministries and agencies, the coastal provinces and major municipalities, and other domestic organizations.
The State Council and the Party jointly held a National Poverty Reduction Conference in September, 1996. The Conference further increased the already high profile of poverty reduction as a key task for national development, and marked a new milestone in the political arrangements and support, funding, and strategies for that work. President Jiang Zemin and Prime Minister Li Peng delivered key note addresses, and the governors and party secretaries of each of China's western provinces attended the Conference.
The Conference established a new "poverty reduction responsibility system" which confirmed that the leaders of the western provinces and of the poor regions and counties in those provinces would be held directly responsible for the effectiveness of the poverty reduction work in their jurisdictions. As shown in Table 3.1, the sharp increase in funding beginning in 1997 reversed a decade of decline in real funding for poverty reduction. In real terms, funding for poverty reduction jumped by over 50 percent in 1997, and recovered to the level of 1987.
(III)
President Jiang Zemin and Prime Minister Li Peng's addresses both emphasized the deepening of the poverty gap and the increased concentration of remaining poverty in the more remote and mountainous areas of central and western China during the 1990s. To assist these remaining poor, the Conference emphasized two important changes. First, it was decided that assistance should be provided directly to poor villages and households. The switch away from support for poor area enterprises and industrial projects, in favor of subsidized loans to households for crop and livestock production and agro-processing, appears to have begun in 1997. Second, the Conference called for better management of poverty reduction funding and greater supervision of poverty reduction works and activities. The specific measures identified during the Conference to improve poverty reduction program management and supervision included institution building, annual reviews and audits, and village-level development planning coupled with village-level earmarked funding. Unfortunately, it appears that only limited institution building and no independent review and auditing has actually taken place since the 1996 Conference. However, some provinces have experienced the favorable impact of village-level development planning and increased supervision of program works and activities, and have initiated the institution building necessary for wider adoption of these measures.
The Central Government held a major poverty reduction conference in June 1999, which laid out the targets and key measures for the remaining eighteen months of the 8-7 Plan. The conference concluded that. of the remaining 42 million absolute poor, 20 million are to rise out of poverty by the end of the year 2000. The remaining 22 million includes the disabled and those who live in extremely harsh and remote conditions. To meet this target by the end of the year 2000, the conference reiterated the Government's commitment to targeting only impoverished villages and households, and confirmed that poverty funding must be more strictly focused on measures that can solve the food and clothing problems of the poor. Priority measures are to include investments in animal husbandry and aquaculture, micro-irrigation, and improved varieties for grain and cash crops. The conference also (a) strongly discouraged the use of poverty funds for industrial projects, (b) confirmed that micro-credit will continue to be a part of the poverty program, provided standardized procedures are used, (c) noted the need for flirter strengthening of financial controls and auditing measures for all poverty funds, and (d) identified increased domestic investment and capital construction in the western provinces as a key aspect of poverty reduction efforts. The importance of grassroots party organizations, the cadre responsibility system, and twinning arrangements with wealthier areas was also emphasized.
Funding Sources and Allocation. In nominal terms, annual central government poverty reduction funding ranged between $1 to $1.5 billion during 1986-96, increased sharply in each year 1997-99, and totaled more than $20 billion during 1986-99. These funds comprise the FFW Program, MOF grants, and subsidized loans provided through ABC and the banking system. (They do not include funding from the Ministry of Civil Affairs for relief programs, or sectoral investments made by line ministries in poor areas). As shown in Table 3.1, the subsidized loans comprise around half the total funding in all years. Measured in constant yuan, total poverty reduction program funding remained stagnant or decreased in real terms until the second half of the 1990s when they recovered and then overtook their earlier level. Particularly sharp increases in the loan program were achieved place in 1997 and 1998. FFW increased sharply in the early 1990s and has risen steadily since then. MOF grants remained stagnant until 1997 when they increased by a substantial margin.
(IV)
This central government funding is supplemented by provincial and lower level poverty funds, and the 1996 National Poverty Reduction Conference required that provinces and lower level governments provide matching funds in the amount of 30-50 percent of the national loan funds. However, the weak fiscal condition of many of the poorer provinces has made it difficult to reach this target, and both Yunnan and Sichuan fell short in 1997.
Similar to the national statistics, in both Yunnan and Sichuan subsidized loans contribute the largest share of the total poverty funding, and this share rose in 1997. In Yunnan the subsidized loan funds (both state and local) comprised 47 percent of total poverty funding in 1997 and in Sichuan 62 percent. Other major sources were grant funds from the fiscal system, which in 1997 comprised (23 percent of Yunnan's poverty spending and 18 percent of Sichuan's), and FFW (14 percent and 18 percent respectively). Foreign finds and other grant funds comprised 8-15 percent of the envelope.
Inspection of national sectoral spending allocations from 1991-1995 shows that almost 60 percent of the total poverty spending (subsidized loans, FFW, and MOF poor area development fund grants) went to agriculture (29 percent) and industry (31 percent). Infrastructure spending represented 35 percent of the total with less than 2 percent spent on education and public health. (These figures exclude substantial funding from the Ministries of Education and Health for poor area education and health programs as well as funding for infrastructural investments in poor areas from sector ministries). Subsidized loans were concentrated on industry and agriculture, FFW on infrastructure, and MOF grants were spread more evenly among all the sectors (Park, 1999, and The World Bank calculations).
Similarly, poverty spending by sector in Yunnan shows a heavy concentration in agriculture and industry. In 1995 and 1997 these sectors absorbed about 60 percent of total poverty spending. Subsidized loans were concentrated most heavily in agriculture and industry, but all other sources of funds (fiscal grant funds, FFW, other grant funds) were also invested in these sectors (see Table 3.2). In 1997, agricultural lending increased and lending for industry declined. The focus of the poverty program on loan funds, and on lending for agriculture and industry, has meant that spending on rural infrastructure and health and education comprise a much smaller share of the envelope. (These figures exclude substantial funding from the Ministries of Education and Health for poor area education and health programs as well as funding for infrastructural investments in poor areas from sector ministries and bureaus). For example, in Yunnan spending on transport, drinking water, and health and education comprised only 7 percent, 3 percent and 5 percent of total poverty spending in 1997. Land improvement and water conservation works comprised 6 percent and 9 percent. Spending in these areas increased from 1995, but their relative share in total poverty spending decreased across the board. This is in part due to the sharp rise in poverty alleviation funds (which are mainly used for agriculture and industry) during a period when FFW funds stagnated after an increase earlier in the 1990s.
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