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China's poverty reduction initiatives on right track
2007-10-16
China Daily
The author is the former vice-minister of finance and current vice-president of the Asian Development Bank.
Developing Asia is one of the most dynamic regions in the world. This dynamism - reflected in the region's high growth rates - has been a key driver of reductions in extreme poverty. For instance, in 1990, 34 percent of developing Asia's population lived under the $1-a- day poverty line. There are good reasons to believe that this percentage is now below 20.
 However, not all countries in the region have experienced large reductions in poverty and the incidence of extreme poverty in many countries remains too high - afflicting between one-fifth and one-third of the population. In this context, it is important to consider the experience of China in reducing poverty. What lessons does this experience provide for policymaking?
The first lesson has to do with the importance of economic growth. Rapid economic growth in China has been a key driver of poverty reduction. An analysis of the country's household survey data indicates that economic well being, or the standard of living, for all segments of the people including the poorest, has improved significantly. In fact, millions have been lifted out of poverty in China in the past two decades as compared with other regions of developing Asia.
In particular, the poorest 20 percent in China have seen their expenditures increase by an average of 3.4 percent per annum between 1993 and 2004 even after making allowances for inflation.
This rate of increase is higher than that registered by any 20 percent group, rich or poor, in a majority of other developing Asian countries. The situation is similar if one were to look at the poorest 40 percent.
The high growth of per capita expenditures of the poorer segments of the population in China suggests that the incidence of poverty in terms of international benchmarks has declined. In fact, a careful look at household survey data from the early 1990s onwards indicates that the country has achieved remarkable declines in poverty.
In terms of the $1-a-day poverty line, commonly used for making international comparisons, the poverty rate - the proportion of the population living under the poverty line - was almost 30 percent in 1993. By 2004, the poverty rate had declined by almost two-thirds.
What is equally significant is that the PRC's track record in reducing poverty is maintained even if poverty is measured in terms of the $2-a-day poverty line. While the $1-a-day poverty line is close to the national, or official, poverty lines typically used in low-income countries, the $2-a-day poverty line is more commonly found in low- to middle-income countries.
Thus, while the $2-a-day poverty rate in China was as high as 64.5 percent in 1993, it had fallen to 37.8 percent by 2004. Once again, very few countries can match such a large reduction in poverty in a matter of just about a decade. This can be clearly seen from the chart, which describes the implied average annual percentage point reduction in poverty rates for developing Asian countries for which data on poverty rates from the early 1990s is available. Along with Vietnam, China is the only other country experiencing a reduction in $2-a-day poverty rates of two percentage points or more per year on average since the early 1990s.
What about the future? The robustness of China's economic growth provides good reasons for optimism that the country's track record in reducing poverty and uplifting incomes of the poorer segments of society will continue. However, there are some issues that may need to be addressed by China in order to ensure that growth continues to translate into solid gains for the poor.
And this is where the second lesson for developing Asia comes in. The rate of economic growth is not the only factor which influences how much poverty will go down by. What is also important is the pattern of growth. Since the poor tend to be disproportionately located in rural areas and dependent on the agriculture sector, more and better paying economic and job opportunities for those in rural areas, including better performance of agriculture is crucial for poverty reduction.
As Premier Wen Jiabao noted in his address to the 10th National People's Congress earlier this year, the patterns of growth across the primary, secondary, and tertiary production sectors in the country have displayed unevenness, as has growth across urban and rural areas, as well as among the different regions of the country.
Bringing in a better balance across these different production sectors and locations will be very important for growth to translate into better economic opportunities for those working in agriculture, and residing in rural areas and in certain regions, especially those in the interior of the country.
This lesson is equally applicable to other developing countries in Asia, especially those in South Asia.
Of course, some of the evenness and growth across production sectors and locations is to be expected in a country that is growing so fast as China's, and experiencing such rapid structural transformation.
As observed by Nobel laureate Arthur Lewis, it is common to expect imbalances during the process of economic development. This is because it is unlikely for economic growth to start in every part of an economy at the same time. In the context of China, this can be most clearly seen in the rapid development of the coastal provinces, which by virtue of having lower transportation costs to major international markets, have been the first to benefit from the country's integration into the global economy.
Nevertheless, policies can be designed to confront imbalances if these become too large. In this context, policymakers in the PRC are already taking action. The creation of a "harmonious society" - a concept which underscores the importance of proper balance across the different parts of an economy and society - has been accorded top priority in the country's 11th 5-year plan.
It is interesting to note that other countries in the region are also striving for greater balance across the different sectors of their economies. In India, the 11th 5-year plan combines the objective of raising economic growth with making it more "inclusive". In Thailand, a key element of its "sufficiency philosophy" is growth with equity. A similar theme can be found in Vietnam's socio-economic development strategy.
Coming back to the case of the PRC, a variety of policy initiatives have been put in place or are in the planning stage. These initiatives are in the right direction. For example, an important driver of inequality in China is slow growth of rural incomes. Reductions in agricultural taxes and fees in the country are being undertaken precisely to address rising urban-rural imbalances.
Rising urban-rural imbalances should also be dampened by modifications that are being made to the hukou system, the registration system that can constrain migration numbers from rural areas to more dynamic urban areas. Increases in outlays for basic education and health care are being made, especially for disadvantaged rural areas.
There is also the introduction of the dibao (minimum livelihood guarantee scheme) social protection scheme designed to help the poorest and most vulnerable. Implemented effectively, these various policy initiatives will prove to be important instruments in helping the PRC achieve growth that is more balanced both across regions as well as across households.
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