Poverty Issue In China Essay, Research Paper

Ever since the economical reform in 1987, China?fs GDP per capita has grown at the speed of 8.2 percent a year, which benefited over 200 million people who had been living in poverty. The economical reforms had improved the economical condition of the country, but it had at the same time increased the economical gaps between the countries and heightening inequalities.

Poverty, in this paper, consists of two elements: income poverty and human poverty. Income poverty is defined as the lack of necessities for material well being, which can be measured by incidence of poverty. Human poverty means the denial of choices and opportunities for a tolerable life in non- income aspects. Human poverty includes many aspects, such as deprivation in years of life, health, knowledge and housing, the lack of participation and lack of personal security. In the paper, I would like to approach the issue through the income poverty.

The paper is divided into the following three sections: the first one provides a general picture of income poverty due to the uneven progress in rural-urban and regional disparity. The second section examines the impacts of economic growth on the process of reducing poverty, especially on agricultural growth and rural industrial growth. The third section focuses on the roles of government in terms of commitment and its policies on the issue, which are t main reasons for the temporary delay of reducing inequality. In the conclusion, the program that the government organized to improve the income equity will be introduced. By doing an analysis on the efficiency of the program, I would like to introduce a better development program if possible.

I. Overview of Poverty Reduction

The high-speed economical development in China has complied an impressive record in reducing human poverty over the last four decades. The most telling indicators of the improvement in the overall well-being of the Chinese population are the increase in life expectancy, the decline of mortality and the drop in adult illiteracy. However, the problem of income poverty continued to exist in rural areas. From the investigation that was carried out in 1978, according to the World Bank’s estimate, there were 260 million rural people living in income poverty, which meant that one-third of the rural population lived under the poverty line. 1 The shocking reality of the rural poverty situation created a sense of crisis and were finally listed the income disparities as one of the priority reform in 1978.

The reform was first believed to be a success. Between 1978 and 1985, tremendous progress was made in the rapid decline of income poverty. Estimation of total population living below the national poverty line declined from 260 million to 97 million, and the incidence of poverty declined from 33% to 9.2%. During the same period, the number of rural poor decreased to 96 million while the urban poor population decreased to less than 1 million.2

Nevertheless, despite the successful start, China’s progress in poverty reduction was not sustained during the 80s. The rural poor increased to 103 million in 1989 from 86 million in 1988, and the incidence of poverty rose to 12.3% from 10.4% which shows the signs that income poverty had increased. As the 90s arrive, although the income poverty reduction resumed, the result was not as optimistic as when the reform was first carried out. The number of poor people moving above the poverty line rose to 5 million a year, compared with only 2.5 million in the late 1980s and the early 1990s which shows an small improvment.3

Throughout the whole process of poverty reduction, there were still apparent inequities between rural and urban populations, between rich coastal areas and poor interior areas.

I.1 Rural-urban disparity

When the economical reform was first carried out, both rural and urban areas were able to benefit from its economical growth. As a result, income disparity between these two areas declined and the ratio of urban to rural income reduced from 2.4 to 1.7. However, after 1985, the ratio started to rise. In 1994, the income of urban residents was 2.6 times compare to the rural residents, and the actual income gap ratio of urban residence and rural residence was 4 to 1.4

Most of the rural poor reside in areas of severe environmental degradation, with no alternative. Not only they live on nations’ least productive lands; they are the victims of environmental destruction, which effect the agricultural possibility. Continued population growth has reduced the per capita natural resource base supporting agricultural production. With hazards from the start, it makes it even more difficult for the poor to escape from their condition.

I.2 Regional disparity

In the early 1980s, China’s regions all shared the rapid real economic growth. But since the mid-1980s, regional disparity has become wider than before 1980. A research indicates that the relative regional disparity coefficient declined from 32.8 to 28.7 between the late 1970s and the early 1980s, but increased from 28.8 in 1985 to 33.6 in 1992. 5

II.Impacts of Economic Growth on Poverty Reduction

II.1 Agricultural growth

The rapid growth of agriculture, is a direct determinant of the tremendous two-thirds reduction in poverty between 1978 and 1984. In this period, the value of agricultural output grew at a rate of 7.4% annually, compared with the rate of 2.5% in the period of 1952-78. As a result of fast agricultural growth, per capita income for the rural population had almost doubled between 1978 and 1984. 6

The growth rate, however, of personal income in rural areas between 1986-93 declined to 2.45 annually. During this period, each percentage of increase in GDP had caused 0.05% decline in poverty.7 The rate of poverty reduction rose somewhat in rural areas, but income inequality increased despite the fact that the economy continued to grow rapidly. One of the reasons is that the growth in gross output value of agriculture at constant price slowed down after 1985 and remained low. Due to the decline in agricultural growth, farmer’s real incomes stopped to increase in 1990.

II.2 Rural Industrial Development

Similar to the condition of fast agricultural growth, rapid development of rural enterprises is the another reason for the decrease of poverty. Enterprises that invest in the rural areas enlarge rural population’s participation in economic growth by creating new jobs and increasing incomes, which have benefited many rural residences. In 1978, total industrial production of the capital investment in the rural areas was 49.3 billion yuan, which rose to 2036 billion yuan in the year 1992.8

An agricultural growth and rural enterprise development were closely connected to participating growth and poverty reduction at the beginning of the reform period. Thus it is not surprising that the absence of meaningful levels of agricultural growth and rural enterprise development in the poor areas correlated with the fact participatory growth and poverty and poverty reduction could not be sustained after 1985.

II.3 Urban-rural migration

Migration from rural to urban areas, which was strongly discouraged before 1978, has played a positive role in decreasing income poverty in rural areas. For example, many surplus rural laborers in the western provinces, under the help of active programs, found jobs in the more developed areas of their own provinces or in the coastal provinces. Many of them sent income remittances that allow relatives on the farms to improve their standard of living, or took their saving back home to set up small businesses, creating needed jobs in the villages. Sichuan is a leading province for rural labor mobility with about 6 million peasants working in other provinces and another 4 million within the province. Remittances from those outside Sichuan province amounted to an estimated 20 billion yuan ($2.4 billion) in 1995, accounting for 7% of the province’s GDP. About 300,000 of peasants who have returned have started their own businesses, creating thousands of local jobs.9

Although impact of the rural-urban migration has been an indisputable factor in reducing poverty in rural China, it is almost certain that urban poverty would increase if these migrants were included in the household surveys. The government has recently estimated that the number of urban poor is about 12 million people.10 Most of the urban poor are migrants, who are worse off than the urban residents.

III. The Role of Government: Commitment, Policies, and Expenditures

The strategy of supporting the poor that the Chinese government adopted between 1978 and 1985 can be said to be the cause of rapid decline in poverty. Although the government had listed the issue of disparity as the priority, the government?fs policies still favors the development of the coastal and urban areas. In the following section, the government?fs participation and the policies will be introduce as well as its efficiency.

III.1 Commitment

Although the Chinese government?fs reform was not as successful as it was expected, it held a strong commitment to poverty reduction during the period. Ever since the adoption of poverty decrease strategy during the 7th Five Year Plan with the emphasis on strengthening of assistance to the poorest, different departments in the government had acted upon on the issue of poverty. The Ministry of Civil Affairs provided disaster relief and income maintenance support. The State Education Commission and the Administrator of the Ministry of Public Health Administer formed programs to improve the education and health status of the poor. The Agricultural Bank of China and several other banks offered loans for poor area development. The Regional Office of the State Planning Commission administered a Food-For-Work Program which assists with the building of roads and river and transport, drinking water systems, irrigation works and other capital construction in poor areas. Besides the central government?fs policies, each of the central ministries and agencies had formed distinct poor area project and every province has its own programs.

III.2 Policies

At the beginning of reform, the Chinese government had carried out several measures to reduce poverty, which significantly contribute to the strong agricultural growth during the period between 1978 and 1984. The actions, such as expanding marketing networks, freeing up prices and encouraging diversification and commercialization of agriculture.

There were four specific policy reforms that significantly enhanced the effects of participatory agricultural growth on poverty reduction. The first one was land reform, coupled with widespread decollectivization. Empirical statistics show that the total factor productivity in the collective system was about 20% to 30% lower than in the household system.11 Through the land reform and decollectivization, collective land in most areas was equally distributed to a household in proportion to the size of the household, which substantially stimulated the incentives of peasants to increase agricultural output. A careful econometric analysis found that of the remarkable 42.2% output growth in the cropping sector in 1978-84, about 54% was attributable to productivity growth due to reforms. Of the productivity growth, 97% was attributable to the change in farming institutions from collectivization to the household responsibility system.12

The second was market-oriented reform. The government cut the grain procurement quota and reduced the number of products covered by plan control to increase grain production. For example, the number of planned product categories were reduced from 21 in 1978 to 13 in 1982.13 Special measures were also taken to loosen restrictions on inter-regional trade in agricultural products by private traders, and to encourage areas that traditionally had a comparative advantage in cotton production to expand cotton-sown acreage.

The third was migration policy. The government eased controls and allowed millions of rural residents to move temporarily or permanently to towns or cities in 1982. In 1983 temporary migration from villages to townships while retaining village household registration was allowed. In 1984, permanent migration from villages to urban areas was approved. These measures help reduce urban-rural disparity, regional disparity, and increased the standard of living in rural areas.

However, a shift in China’s development strategy affected the progress in poverty reduction. Until the middle of the 1980s China was following an agriculture-led strategy of development. Since the mid-1980s, its development strategy has distinctly been oriented towards export-led industrialization. The focus of public investment and fiscal incentives was deliberately shifted in favor of the coastal growth poles by providing special privileges, incentives, and investment allocation to coastal provinces and cities. It left more isolated provinces and counties in the interior provinces with fewer resources and the same authoritative state pricing and procurement procedures. This also caused a widening regional disparity after the mid-1980s.

IV. Strategies to reduce poverty

IV.1 Providing additional funds and effectively utilizing these funds

The Chinese government combines political commitment with financial commitment to poverty reduction in order to meet the goal of the 8-7 program. The central government decided to increase annual contribution for poverty alleviation. From 1996 on, it will invest an additional input of 4.5 billion yuan annually. This will make annual funding poverty alleviation totals 15.3 billion yuan.14

Utilizing funds effectively for the poverty reduction is very important for reaching the stated goals. Funds were believed to be mistargeted, and failed to reach individual poor households. Misallocation happens in the following two ways: First, the central government and provincial government distribute the funds to poor counties according to the needs of the area, but county governments distribute it according to whether people are able to repay. Most poverty alleviation funds are issued as loans with subsidized interest rate, but extremely poor people have no economic capacity to repay the loan, and thus can hardly get access to the loans. Second, targeting funds have not been well distributed. According to a survey made in 1994, 30% of the funding for poverty alleviation and the food for work funding from the central government that should have been issued to the 592 poor counties were distributed in other places.

IV.2 Mobilizing Resources

In addition to increasing funds, the central government also need to mobilize the financial resources from developed provinces and municipalities in the coastal areas to support the target provinces and autonomous regions in poor areas by employing a partnership method. For the problem of disparity is severe in China, the richer get richer, while the poor get poorer. To prevent the income gap from widening, it is important for the urban or coastal areas to help the rural or interior regions. For it might cause the urban area a economical pressure to carry all burden of lifting people in rural areas out of poverty, the strategy of a providence helping a particular providence with the similar environment originally can be taken place.

V. Conclusion

China achieved tremendous progress in the reduction of both income and human poverty between 1978 and 1985. Its fast growing agriculture and rural industries, and the pro-poor strategy of the government played a determining role. However, the progress has slowed down and stagnated in the period of 1986-92. The reduced commitment of the central government towards widespread public services, the shift to development strategies in favor of the coastal areas without enough compensation for poor western areas, combined with insufficient funds contributed to the stagnation of poverty reduction. After 1993, especially in 1994, when the comprehensive anti-poverty program was formally established, the Chinese government’s renewed commitment to poverty reduction started to show some results. By the beginning of 1997, the proportion of the population living below the national poverty line fell to 58 million. There is still a long way to go, however if China is to achieve its goal of irradiating income poverty by the year 2000. The pace must pick up.

China’s experiences in poverty reduction tells the following lessons:

- Good growth performance does not always bring good poverty performance.

- Bad agricultural growth performance brings bad poverty performance.

- Without timely public intervention, the close relationship between the participatory growth and rapid poverty reduction cannot be sustained.

- Political commitment to poverty reduction must be combined with financial commitment at all times.

Good growth performance does not always bring good poverty reduction performance. In China’s case, the economical condition favors the coastal areas in every way. Starting with greater access to world markets, better infrastructure and educated labor force, as well as government’s preferential treatment, the high-speed growth was promised. The unequal access to opportunities to improve income and welfare, resulting in differential access to education and health care; rising discrimination against women in the labor market; and imperfect labor markets.

To ensure the benefits of growth reach all of society, and reduce poverty, I believe that the following actions must be taken place:

- Targeting assistance programs that focus on education, health, and employment to protect the poor and provide safety nets for the vulnerable.

- Eliminating policy biases and strengthening the government’s regulatory function by redressing the urban bias and removing the coastal bias in economic policies.

- Dealing fairly with the rich and prevent corruption by reducing bureaucratic discretion, establishing clear and transparent rules for public decision-making and stamping out access to insider information through the proper regulation of financial markets.