Can China eradicate poverty?

Author: Ding Dou, Peking University

China has had remarkable success in alleviating poverty. According to World Bank statistics, over the past several decades China has accounted for more than 70 per cent of reductions in global poverty. The poverty-stricken population in China has plunged from 770 million people in 1978 — the year before economic reforms began — to 55.8 million in 2015. And the Human Development Index (HDI) for China has improved by 43 per cent between 1990 and 2013, compared to an improvement of 17.6 per cent globally.

A boy, whose parents collect garbage for a living, plays on a makeshift swing at his dwelling, in Yuncheng, Shanxi province, 10 March 2015. (Photo: Reuters).

In September 2015, the participating countries in the United Nations Development Summit unanimously adopted a new agenda for poverty reduction that aims for the complete elimination of extreme poverty over the next 15 years. In light of that challenge, China’s great achievements might provide lessons for other developing countries.

Initially, poverty was understood as a matter of absolute income, and so the way to eliminate poverty was economic growth. Economist Simon Kuznets argued that increases in per capita GDP would lead to a widening income gap in the early stages of development, but that the gap would gradually narrow when per capita GDP reached a certain level.

This was consistent with China’s experiences with exceptional economic growth over a period of years. Alongside the soaring income produced by massive industrialisation, huge numbers of farmers flocked to cities, facilitating poverty reduction in China’s villages through remittances sent back home. By the early 2000s, the overall poverty rate in China had shrunk dramatically.

But China’s poverty entered a new phase marked by widening gaps between cities and rural areas, and between coastal industrial regions and the interior hinterlands. The relationship between economic growth and poverty alleviation was more complicated and less assured than once thought.

It appeared that economic growth driven by industrialisation was not a panacea. Economist Theodore Schultz argued that developing a modern agricultural sector was equally as important. After all, the majority of poor people live in the countryside and earn their livelihood through agriculture. Schultz argued that the root cause of poverty is not a shortage of physical capital but a shortage of ‘human capital’, such as education and healthcare.

From the early 2000s onward, the Chinese government began to focus on addressing agriculture, the state of rural areas and the status of farmers. In 2006 they eliminated agricultural taxes, which had existed for more than 2000 years. The government also made great efforts to improve social services in rural areas, providing improved education for rural students and new cooperative medical care, as well as minimum living-standard guarantees for more than 53 million rural people.

Since 2011 the growth rate in per capita net income and per capita GDP for rural residents has been higher than the national average. In 2015 alone, the impoverished population in rural areas declined by 14.42 million people, and the incidence of poverty fell to 5.7 per cent from 7.2 per cent in the previous year.

Economist Amartya Sen shifted the perspective on poverty again from income to human capability, and the meaning of development from income and wealth to the quality of life. He believed economic theory should focus on human behaviour rather than the consumption of commodities. Following his work, the United Nations Development Program in 1997 proposed the concept of human poverty, defined as a lack of individual development opportunity and freedom of choice.

Human poverty consists of four dimensions: income poverty, rights poverty, human resources poverty and knowledge poverty. As the concept of poverty moved from an economic issue to a social issue, governments were encouraged to take comprehensive measures to unlock those rights, and engage in the necessary fiscal transfers. According to this new concept, China’s record looked worse, making it necessary for the government to take corrective measures. One outstanding measure was the effort to improve the social security system across society to reduce the vulnerability of poor people.

After many years of rapid economic growth, aggregate poverty in China has been effectively stamped out. The issue now is individual poverty, which involves a diversity of contributing factors ranging from education, health and social inequality to ethnic minority status, digital divides and even environmental degradation. Research on measuring the multidimensional degree of poverty got a forceful boost. In 2015, the Nobel Prize for economics was awarded to Angus Deaton, who compared the living standards of people in different countries with changing international price differences through the concept of purchasing power parity (PPP), effectively gauging the real depth of the headcount ratio for poverty and wealth in different countries.

Defining the real poverty line and adjusting the poverty standard correspondingly is critical for poverty alleviation in China. In 1978, China’s absolute poverty was defined as a per capita net income of 100 yuan (US$15) per year for rural residents. In 1984, this number was raised to 200 yuan (US$30) a year. In 2011, annual per capita income of 2300 yuan (US$344) was set as the latest national poverty standard, causing the statistical measure of the country’s poor population to increase five-fold from 26.88 million in 2010 to 128 million people.

So how can we gauge China’s poverty compared with the rest of the world? The World Bank in 2005 defined the poverty line as US$1.25 per person per day. According to the official exchange rate, Chinese rural residents ranged between US$1.00 and US$1.25. Yet judged by PPP standards, China’s rural poverty situation is better than the World Bank’s benchmark.

At the beginning of 2016, President Xi Jinping again promised to address poverty in his New Year’s message. Xi’s administration has set the goal of building a xiaokang (well-off) society by 2020, which means seeing an average of 10 million impoverished people a year bid farewell to poverty. If that goal is achieved, China will again be the frontrunner in reaching the UN’s Post-2015 Development Agenda.

Ding Dou is a Professor in the School of International Studies at Peking University, Beijing, China.

An extended version of this article first appeared here in Global Asia.

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31 July 2016 2:00 am

You wonder why the government did not invest in the countryside after beating the KMT in 1949?

Ding Dou
31 July 2016 2:10 pm
Reply to  Gunther

China followed the overtaking strategy after 1949, and thus put resources to develop heavy industry and an independent & comprehensive industrial system. Industrilization was the supreme aim the government sought. That was why government did little new investment in the conuntryside.

Gunther Von Hoffman
2 September 2016 10:13 am
Reply to  Ding Dou

Thank you for the information Ding Dou

31 July 2016 10:16 pm

Thanks for an informative summary of the situation in China. I had not heard/read anything about changes implemented since 2006 to alleviate poverty in rural areas, for example. It is heartening to learn that the government has made some efforts to address the lack of social services, relatively inadequate educational resources, etc being provided to the residents in the countryside.

The paragraph about the ‘defining the real poverty line’ is very telling, however. Ie, the yardstick one uses to determine who is poor is extremely important in this kind of discussion. Seems to me that a yearly income of $344 is still terribly low. Just using that measure increased the number of the country’s poor fivefold in 2010.

Perhaps it was a lack of space which prevented the author from noting the following: parents who move to the large cities to find work which pays them better often leave behind children in their home villages. These children are being raised by elderly grandparents, some of whom lack the time or sophistication to provide the children with the kind of emotional support they need to cope more effectively with the absence of their parent(s). The long term effects of these separations will probably be very significant on the individuals involved and the society more generally.

Ding Dou
3 August 2016 2:32 pm
Reply to  Richard

The labor go to the urban city and leave their old parents and their kids in the countryside, it is a big problem in Chinese urbanization. In addition, it is common in other countries. In the case of China alone, the reasons varies. Maybe it is attributed to the root question: what path of urbanization? In many western cities, the kids go to cities with their parents, but the infrastructure and education in the city could not match up with. As a result, that contributed partly to the shaping of slum or favela. In China, there is no Western-style slums. Anyway, Chinese government is trying many ways to improve the problem of left-behind children and to embrace the labor into the city.

Yoshimichi Moriyama
2 August 2016 12:59 pm

Why didn’t the government invest in the countryside? Industrialisation was the supreme aim the government sought.
To add, a Japanese distinguished scholar on Chinese literature said, perhaphs a little before October 1944, “The Chinese communists are entering urban areas. Chinese ruling elites had their social and political base in cities throughout history, not in the country. I wonder what will happen.”

City dwellers were completly indifferent to tremendous sufferings of the countryside, and Chinese intellectuals have been city dwellers and Cofucianit ideologues for a dynasty.
It was perhaps not only the lack of space that prevented the author from writing about the countryside. A small nubmber of those who speak up are either in the US or in jail.

2 August 2016 2:55 pm

It is an interesting piece.

But what it did not mention is that in 1978, China was a basket case and almost everyone was equally poor and the population was nearly 1.2 billion.

When Deng Xiaoping declared in 1978 the maxim that “it is not the colour of the cat than counts (anymore) but whether it can catch mice” the Marxist ideology was tossed out of the collective windows.

“To be rich is glorious” he defiantly proclaimed.

That was merely 38 years ago and today China is the No2 largest economy in the world (largest on PPP terms) and the largest trading nation on Planet Earth.

By 2020, China will overtake the US as the largest economy in the world as the US national debts soars over US$22 trillion by then, if the budget deficit piles up the way it does in the past years.

Today, the writer says there are 128 million poor people in China and that translate into 9.48%. This means that 1.2 billion Chinese are no longer poor after 38 years of par excellence economic governance.

Has any Government in the Western Liberal Democracies any experience at all to govern such a massive population? No, None.

In the so-called rich nations like the USA, about 45 million poor folks are surviving on food stamps and that translate into 14.5% of the population, not counting the 2.3 million ‘poor’ people in US jails and the estimated 1 million homeless, living on skid rows.

There are also an estimated 95 million Americans not in the job market.

“The UK is the world’s sixth largest economy, yet 1 in 5 of the UK population live(s) below our official poverty line, meaning that they experience life as a daily struggle.”

That translates into 20% of people living in poverty in the UK.

Today, there are more millionaires and billionaires in China than in many nations in the West and you ain’t seen nothin’ yet.

Ding Dou
3 August 2016 11:12 pm
Reply to  KTTan

China’s story, not just only the poverty alleviation, is challenging the orthodoxy Washington consensus. It is now contributing to the ideology diversity of the world.