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Poverty in China: Wikis




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Poverty in China refers to people whose income is less than a poverty line of $1.25 per day (PPP) set by the World Bank benchmark (see Measuring poverty). Poverty has affected all aspects of the nation’s life, including the environment, health, education, housing, nutrition and agriculture to name but a few. It has distorted the individual’s value, disrupted families and communities, and sent millions from the poorer regions to the cities in a desperate search for work.

Since the far changing economic reforms were made in the late 1970s, the growth fueled a remarkable increase in per capita income and a decline in the poverty rate from 64% at the beginning of reform to 10% in 2004. At the same time, however, different kinds of disparities have increased. Income inequality has risen, propelled by the rural-urban income gap and by the growing disparity between highly educated urban professionals and the urban working class. There have also been increases in inequality of health and education outcomes. There have been also reports of exaggeration by China on its poverty rate.[1]

Some rise in inequality was inevitable as China introduced a market system, but inequality may have been exacerbated rather than mitigated by a number of policy features. Restrictions on rural-urban migration have limited opportunities for the relatively poor rural population. The inability to sell or mortgage rural land has further reduced opportunities. China has a uniquely decentralized fiscal system that has relied on local government to fund basic health and education. The result has been that poor villages could not afford to provide good services, and poor households could not afford the high private costs of basic public services. Ironically, the large trade surplus that China has built up in recent years is a further problem, in that it stimulates an urban industrial sector that no longer creates many jobs while restricting the government's ability to increase spending to improve services and address disparities. The government has recently shifted its policy to encourage migration, fund education and health for poor areas and poor households, and rebalance the economy away from investment and exports toward domestic consumption and public services, to help reduce social disparities.



China has been the most rapidly growing economy in the world over the past 25 years. This growth has led to an extraordinary increase in real living standards and to an unprecedented decline in poverty. The World Bank estimates that more than 60% of the population was living under its $1 per day (PPP) poverty line at the beginning of economic reform. That poverty headcount ratio had declined to 10% by 2004, indicating that about 500 million people have been lifted out of poverty in a generation.

At the same time, the phenomenal rate of change has brought with it different kinds of stresses. China faces serious natural resource scarcity and environmental degradation. It has also seen growing disparities of different kinds as people in different parts of the country and with different characteristics have benefited from the growth at different rates.

Starting from the pre-reform situation, some increase in income inequality was inevitable, as coastal urban locations benefited first from the opening policy and as the small stock of educated people found new opportunities, though particular features of Chinese policy may have exacerbated rather than mitigated growing disparities. The household registration (hukou) system kept rural-urban migration below what it otherwise would have been, and contributed to the development of one of the largest rural-urban income divides in the world. Weak tenure over rural land also limited the ability of peasants to benefit from their primary asset.


The large trade surplus that has emerged in China have exacerbated the inequalities and makes them harder to address. The trade surplus stimulates the urban manufacturing sector, which is already relatively well off. It limits the government’s scope to increase funding for public services such as rural health and education. The government has been trying to rebalance China’s production away from investment and exports and toward domestic consumption and services to improve the country’s long-term macroeconomic health and the situation of the relative poor in China.


Poverty reduction

China has maintained a high growth rate for more than 25 years since the beginning of economic reform in 1978, and this sustained growth has generated a huge increase in average living standards. China had many characteristics in common with the rest of developing Asia 25 years ago: large population, low per capita income, and resource scarcity on a per capita basis. In the 15 years from 1990-2005, China averaged per capita growth of 8.7%.


After joining the WTO China’s average tariffs have dropped below 10%, and to around 5% for manufactured imports. It initially welcomed foreign investment into "special economic zones", but it is important to note that some of these were very large, amounting to urban areas of 20 million people or more. The positive impact of foreign investment in these locations led to a more general opening up of the economy to foreign investment, with the result that China has become the largest recipient of direct investment flows in recent years.[2]

The opening up measures have been accompanied by improvements in the investment climate. Particularly in the coastal areas have cities developed their investment climates. In these cities the private sector accounts for 90% or more of manufacturing assets and production. In 2005 average pretax rate of return for domestic private firms was the same as that for foreign-invested firms.[3] Local governments in coastal cities have lowered loss of output due to unreliable power supply to 1.0% and customs clearance time for imports has been lowered in Chinese cities to 3.2 days.[3]

China’s sustained growth fueled historically unprecedented poverty reduction. The World Bank uses a poverty line based on household real consumption (including consumption of own-produced crops and other goods), set at $1 per day measured at Purchasing Power Parity. In most low-income countries this amount is sufficient to guarantee each person about 2000 calories of nutrition per day, plus other basic necessities. In 2007, this line corresponds to about 900 RMB per year. Based on household surveys, the poverty rate in China in 1981 was 64% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period. [4]


Increased inequality




The large productivity and wage gap between cities and countryside also drives a high volume of rural-urban migration. Lewis pointed out that, starting from a situation of 80% rural, the initial shift of some people from low-productivity agriculture to high productivity urban employment is disequalizing. If the flow continues until the population is more than 50% urban, however, further migration is equalizing. This pattern is very evident in the history of the U.S., with inequality rising during the rapid industrialization period from 1870-1920, and then declining thereafter. So, the same market forces that have produced the rapid growth in China predictably led to higher inequality. But it is important to note that in China there are a number of government policies that exacerbate this tendency toward higher inequality and restrict some of the potential mechanisms that would normally lead to an eventual decline in inequality. [6]

Restrictions on migration




Land policy and corruption

In the same way that people are either registered as urban or rural, land in China is zoned as either rural or urban. Within both locations, property rights over land are mediocre. In urban areas people can easily sell their land and buildings, or mortgage them to borrow. In rural areas, peasants have long-term tenure as long as they sow the land, but they cannot mortgage or sell the use rights. The biggest distortion, however, concerns moving land from rural to urban use. China is a densely populated, water-scarce country whose comparative advantage lies more in manufacturing and services than in agriculture. The fact that many peasants cannot earn a decent living as farmers is a signal that their labor is more useful in urban employment, hence the hundreds of millions of people who have migrated. But, at the same time, it is efficient to alienate some of the land out of agriculture for urban use.


Furthermore, one reads in the press of many cases where peasants complain and demonstrate because the conversions have not been done in a transparent way, and there are accusations of corruption lining the pockets of local officials. The government has published statistics on violent protests involving more than 100 people, and that number grew steadily up to 2005 (84,000 incidents), before dropping a reported 20% in 2006. Up until 2006, the way in which agricultural land was being converted to urban land probably contributed unnecessarily to increasing inequality. It has been noted that compared to other developing countries, virtually all peasants in China have land. If that asset could be used either as collateral for borrowing, or could be sold to provide some capital before migrants moved to the city, then it would have been helping those who were in the poorer part of the income distribution. The administrative, rather than market-based, conversion of land essentially reduced the value of the main asset held by the poor.

Fiscal system and rural social services




Inequalities in spending are even larger at the sub-provincial level. The richest county, the level that is most important for service delivery, has about 48 times the level of per capita spending of the poorest county.[8 ] These disparities in aggregate spending levels also show up in functional categories such as health and education where variation among counties and among provinces is large.





See also


Organizations and campaigns


  1. ^ Park, Albert; Wangb, Sangui (2001). "China's poverty statistics". China Economic Review (4): 384–398. doi:10.1016/S1043-951X(01)00066-9.  
  2. ^ Lardy, Nicholas R., 2002. The Economic Future of China.
  11. ^ Campaign to Reduce Poverty in America
  12. ^ United Nations Millennium Campaign
  13. ^ Stand Against Poverty
  14. ^ The Red Letters Campaign

Further reading

External links




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