Can President Xi's Administration Wipe Out Poverty?

China's President wants to drop 10 million people from poverty annually.

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 percent 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. In addition, the Human Development Index (HDI) for China has improved by 43 percent between 1990 and 2013, compared to an improvement of 17.6 percent globally.

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.

However, 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 percent from 7.2 percent 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.

Can China eradicate poverty? is republished with permission from East Asia Forum

See also: Ending Income Poverty through Financial Inclusion