Reducing Absolute Poverty in China: Current Status and Issues.

• Author: Piazza, Alan

Since 1978, it is estimated that more than 200 million Chinese have escaped absolute poverty, as a result of Chinese government initiatives, bringing the share of China's total population living in absolute poverty to less than 10 percent,(1) This significant reduction of absolute poverty, from large numbers of poor spread widely across the countryside to pockets of poverty in remote resource-deprived areas, required a change in the government's agriculturally-focused approach to reducing poverty. Currently, however, the very limited agricultural resource base and lack of basic rural infrastructure, coupled with a deplorable health status and level of educational attainment, not only constrain the effectiveness of government poverty reduction programs in these areas, but also severely hamper single-sector agriculture and rural enterprise development interventions.

In order to guarantee a minimum safety net while improving the productivity of the poor over the long-term, revitalized social services should be integrated with improved agriculture and rural enterprise development programs. The most cost-effective large-scale poverty reduction approach may be to expand opportunities for out-migration of surplus labor from poor rural areas to more developed rural and urban areas, where there is stronger demand for unskilled workers.

BACKGROUND

Reforms to Eliminate Absolute Poverty

Rural economic reforms including the adoption of the production responsibility system, the dismantling of the commune system, agricultural product price increases and market liberalization were associated with dramatic rural economic growth from 1978 to 1985. A 1992 World Bank study, China: Strategies for Reducing Poverty in the 1990s (hereafter, referred to as Strategies or the World Bank Country Study)(2) concluded that broad participation in these rural economic reforms spurred the tremendous reduction in absolute poverty from roughly 270 million poor in 1978 to about 100 million in 1985, or from one-third to about one-tenth of the total rural population. Average rural per capita income grew at an average annual rate of 13 percent in real terms during this period, and it increased in total by more than 140 percent. The gross value of agricultural output increased by a total of 60 percent in real terms, at an average annual rate of 7 percent, more than double the total growth rate of the previous decade.

Perhaps most impressive was the increase in township and village enterprise (TVE) output and employment levels. TVEs are mostly labor-intensive enterprises engaged in manufacturing which include assembling everything from radios and phones to shoes; production of construction materials, such as gravel, wood, polished granite and other stone; and services, including transport construction and other activities. TVE output values appear to have increased fivefold in real terms from 1978 to 1985 (though part of this increase is explained by a broadening of the definition of TVE, beginning in 1984), and employment more than doubled from 28 to 70 million jobs. These trends in rural economic growth and incidence of absolute poverty are summarized in Table 1.

Table 1: Rural Economic Growth and Incidence of Absolute Poverty 1978 1985 1990 1995 Population (in millions) Total 963 1,059 1,143 1,211 Rural 790 808 841 859 Incidence of Rural Absolute Poverty in millions of people 260 96 97 70 % of Rural Population in Poverty 33% 12% 12% 8% Average Real Per Capita Income Rural (1978 Yuan)(*) 134 324 339 441 Real Sectoral Output Values Agriculture (1978 = 100) 100 162 203 290 TVE (1978=100)(**) 100 506 1,184 6,834 Total Rural Laborers in millions 306 371 420 450 TVE Employment in millions of people 28 70 93 129 (*) Nominal rural average per capita income deflated by the rural retail consumer price index.

(**) Nominal TVE output value deflated by the implied deflator for gross industrial output.

Sources: Chinese Statistical Yearbook, 1996, State Statistical Bureau, no. 15 (China: China Statistical Publishing House, 1997). Alan Piazza, "China Strategies for Reducing Poverty in the 1990s," A World Bank Country Study, ISSN: 0253-2123 (Washington, DC: World Bank, 1992).

Current Faces of Absolute Poverty

Absolute poverty in China is currently concentrated in resource-constrained remote upland areas. Since virtually all of China's rural population received land-use rights as part of the implementation of the production responsibility system during the early 1980s, there are few if any landless laborers. Instead, the majority of the rural poor are now concentrated in resource-deficient areas, and they comprise entire communities located mostly in upland sections of the interior provinces of northern, northwestern and southwestern China. Although these poor have land-use rights, in most cases the land itself is of such low quality that it is not possible to achieve subsistence levels of crop production. Consequently, most poor consume grain and other subsistence foods beyond their own production levels, and they are negatively affected by price increases of these products. The poorest households are typically those further disadvantaged by high dependency ratios, ill health and other difficulties. Minority peoples are known to represent a highly disproportionate share of the rural poor. Available evidence does not suggest that women are greatly overrepresented among the poor, though poverty certainly does exacerbate society-wide problems of lower rates of female participation in education, higher relative female infant mortality rates and higher rates of maternal mortality.

The educational and health status of Chinese still living in absolute poverty is deplorable. At least 50 percent of the boys in some of China's poorest villages (particularly in some minority areas) and nearly 100 percent of the girls do not attend school and will not achieve literacy. The infant mortality rate (IMR) and maternal mortality ratio (MMR) in very poor counties--which exceed 10 percent and 0.3 percent, respectively--are 50 to 100 percent greater than the national average, and they are even greater in the poorest townships and villages. Incidence of infectious and endemic diseases, including tuberculosis and iodine deficiency disorders, is concentrated in poor and remote areas. Roughly 50 percent of children in households at or below the absolute poverty line are at least mildly malnourished (stunted), and iron, vitamin A and other micronutrient deficiencies remain a severe problem among the poor. As much as 90 percent of poor children suffer chronic worm infections.(3)

Recent Causes and Obstacles

A number of macroeconomic developments stymied concerted government efforts to reduce poverty during the second half of the 1980s: (a) sharply increased prices for grain and other subsistence goods adversely affected the real incomes of the majority of the rural poor; (b) rapid growth of the working-age population exceeded the expansion of employment opportunities, contributing to a temporary worsening of rural underemployment from 1989 to 1990; (c) economic growth was greater in the higher-income coastal provinces than in the lower-income inland northwestern and southwestern provinces; and (d) rural income levels stagnated during the second half of the 1980s (the average annual growth rate of real per capita rural income declined to only 1 percent from 1985 to 1990). In addition, given the limited revenues of local governments in poor areas and the lack of appropriately earmarked funding from higher levels of government, poor-area local governments have been unable to support adequate social services.

The key obstacle to reducing poverty from 1985 to 1990, however, was the absence of meaningful levels of agricultural growth and rural enterprise development in the upland areas. Many of the rural poor in 1978 resided in less remote and less hilly areas, where increased application of fertilizer, irrigation, better seed and other modern inputs brought about rapid productivity gains, and so they were able to participate in rapid agricultural growth between 1978 and 1984. However, the quick reductions of poverty through agricultural growth were largely exhausted by the end of 1984. Most of the residual poor have remained trapped in more remote upland areas, where agricultural productivity gains have proven far more elusive. Measured on a per capita basis, output of grain and subsistence foods in such areas failed to sustain any significant increase during the 1980s. Although the agriculture sector expanded in real terms from 1985 to 1989, increased output of non-grain crops and animal and aquatic products, which few of the poor either produce or consume in significant quantities, accounted for virtually all of the modest growth. By comparison, the strong annual growth between 1978 and 1984 of per capita production of grain and oilseeds, which are the subsistence crops of most immediate importance to the poor, turned negative from 1985 to 1989.

TVEs as a Solution

Township and village enterprises, an important source of employment in the rural economy as a whole, have developed very slowly in China's poorest areas. In the early 1980s, TVE employment actually decreased in poor areas as the commune system was dismantled. Employment rose only after a 1984 policy initiative supporting private rural enterprise opened opportunities for small family firms particularly suited to the limited market niches available in poor areas. However, by 1990 only 4 percent of the rural labor force in China's 120 poorest counties had found employment in rural enterprises, as opposed to the...