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Eradicating poverty in china
In China today, poverty refers mainly to the rural poor, decades of economic development has reduced urban extreme poverty.According to the World Bank, more than 850 million Chinese people have been lifted out of extreme poverty; China’s poverty rate fell from 88 percent in 1981 to 0.7 percent in 2015, as measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms,which still stands in 2022Chinese definition of extreme poverty is more stringent than that of World Bank, and is defined as earning less than $2.30 a day at purchasing power parity (PPP),Since the start of far-reaching economic reforms in the late 1970s, growth has fuelled a substantial increase in per-capita income lifting people out of extreme poverty. China’s per capita income has increased fivefold between 1990 and 2000, from $200 to $1,000. Between 2000 and 2010, per capita income also rose by the same rate, from $1,000 to $5,000, moving China into the ranks of middle-income countries. Between 1990 and 2005, China’s progress accounted for more than three-quarters of global poverty reduction and was largely responsible for the world reaching the UN millennium development target of dividing extreme poverty in half. This can be attributed to a combination of a rapidly expanding labour market, driven by a protracted period of economic growth, and a series of government transfers such as an urban subsidy, and the introduction of a rural pension. The World Bank Group said that the percentage of the population living below the international poverty line of $1.9 (2011 PPP) fell to 0.7 percent in 2015, and poverty line of $3.2 (2011 PPP) fell to 7% in 2015.At the end of 2018, the number of people living below China’s national poverty line of ¥2,300 (CNY) per year (in 2010 constant prices) was 16.6 million, equal to 1.7% of the population at the time.
On November 23, 2020, China announced that it had eliminated absolute poverty nationwide by uplifting all of its citizens beyond its set ¥2,300 per year (in 2010 constant prices),or around ¥4,000 per year in 2020. The World Bank has different poverty lines for countries with different gross national income (GNI). With an GNI per capita of $10,610 in 2020,China is an upper middle-income country. The poverty line for an upper middle-income country is $5.5 per day at PPP.As of 2020, China has succeeded in eradicating absolute poverty, but not the poverty defined for upper middle-income countries which China belongs to.China still has around 13% of its population falling below this poverty line of $5.50 per day in 2020. Chinese premier Li Keqiang said in May 2020 that 40% of Chinese people earn an average of ¥1,000 CNY (around $150) a month (measured at the exchange rate, not at PPP).
Overview
Since Deng Xiaoping began instituting market reforms in the late 1970s, China has been among the most rapidly growing economies in the world, regularly exceeding 15 percent GDP growth annually. This growth has led to a substantial increase in real living standards and a marked decline in poverty. Between 1981 and 2008, the proportion of China’s population living on less than $1.25/day is estimated to have fallen from 85% to 13.1%, meaning that roughly 600 million people were taken out of extreme poverty.At the same time, this rapid change has brought with it different kinds of stresses. China faces serious natural resource scarcity and environmental degradation. It has also seen growing disparities 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 favored coastal urban locations benefited from the opening policy, and as the small stock of educated people found new opportunities. However, 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.
Aside from income inequality, there has also been an increase in inequality of educational outcomes and health status, partly the result of China’s uniquely decentralized fiscal system, in which local government has been primarily responsible for funding basic health and education. Poor localities have not been able to fund these services, and poor households have not been able to afford the high private cost of basic education and healthcare.
The large trade surplus that has emerged in China has 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 towards domestic consumption and services, to improve the country’s long-term macroeconomic health and the situation of the relatively poor in China.
Recent government measures to reduce disparities include relaxation of the hukou system, abolition of the agricultural tax, and increased central transfers to fund health and education in rural areas.
Poverty reduction
See also: Moderately prosperous society and Targeted Poverty Alleviation
| Poverty headcount ratio at $1.90 a day (2011 Int$ PPP) (% of population) | Poverty headcount ratio at $3.20 a day (2011 Int$ PPP) (% of population) | Poverty headcount ratio at $5.50 a day (2011 Int$ PPP) (% of population) | |
|---|---|---|---|
| 1990 | 66.2 | 90 | 98.3 |
| 2010 | 11.2 | 28.5 | 53.4 |
| 2015 | 0.7 | 7 | 27.2 |
| 2019 | 0.1 | 1.7 | 15.8 |
China has maintained a high growth rate for more than 30 years since the beginning of economic reform in 1978, this sustained growth has generated a huge increase in average living standards. 25 years ago, China had many characteristics in common with the rest of developing Asia: large population, low per capita income, and resource scarcity on a per capita basis. But in the 15 years from 1990 to 2005, China averaged per capita growth of 8.7%
The whole reform program is often referred to in brief as the “open door policy”. This highlights that a key component of Chinese reform has been trade liberalization and opening up to foreign direct investment, but not opening the capital account more generally to portfolio flows. China improved its human capital, opened up to foreign trade and investment, and created a better investment climate for the private sector.
After joining the WTO China’s average tariffs have dropped below 100%, and to around 5% for manufactured imports. It initially welcomed foreign investment into “special economic zones”. Some of these zones 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 became the largest recipient of direct investment flows in the 1990s.
The opening up measures have been accompanied by improvements in the investment climate. Particularly in the coastal areas, cities have developed their investment climates. In these cities, the private sector accounts for 90% or more of manufacturing assets and production. In 2005, the average pretax rate of return for domestic private firms was the same as that for foreign-invested firms. 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 3.3 days.
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 1000 calories of nutrition per day, plus other basic necessities. In 2007, this line corresponds to about 2,836 RMB per year. Based on household surveys, the poverty rate in China in 1981 was 63% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period.
This poverty reduction has occurred in waves. The shift to the household responsibility system propelled a large increase in agricultural output, and poverty was cut in half over the short period from 1981 to 1987. From 1987 to 1993 poverty reduction stagnated, then resumed again. From 1996 to 2001 there was once more relatively little poverty reduction. Since China joined the WTO in 2001, however, poverty reduction resumed at a very rapid rate, and poverty was cut by a third in just three years.
Taken from the Asian Development Bank, there was an estimated average annual growth rate of 0.5% in China between 2010 and 2015. This brought the Chinese population to 1.37 billion in 2015. As per China’s national poverty line, 8.5 percent of people were in poverty in 2013, which decreased to 1.7 percent in 2018.
On 6 March 2020, Xi Jinping, the General Secretary of the Chinese Communist Party, announced that by 2020, China will achieve all poverty alleviation in rural areas.On 28 May 2020, Li Keqiang, the Premier of China, said that “China has over 600 million people whose monthly income is barely 1,000 yuan (USD 140) and their lives have further been affected by the coronavirus pandemic.”
Universal Healthcare
Michelle Bachelet visited China in May 2022, the first time in 17 years that a UN high commissioner for human rights had travelled to China. In a statement about her visit she wrote “The introduction of universal health care and almost universal unemployment insurance scheme go a long way in ensuring protection of the right to health and broader social and economic rights”.
Increased inequality
China’s growth has been so rapid that virtually every household has benefited significantly, fueling the steep drop in poverty. However, different people have benefited to very different extents, so that inequality has risen during the reform period. This is true for inequality in household income or consumption, as well as for inequality in important social outcomes such as health status or educational attainment. Concerning household consumption, the Gini measure of inequality increased from 0.31 at the beginning of reform to 0.45 in 2004. To some extent this rise in inequality is the natural result of the market forces that have generated the strong growth; but to some extent it is “artificial” in the sense that various government policies exacerbate the tendencies toward higher inequality, rather than mitigate them. Changes to some policies could halt or even reverse the increasing inequality. (See List of countries by income equality.)
The Nobel Prize-winning economist Sir Arthur Lewis noted that “development must be inegalitarian because it does not start in every part of the economy at the same time” in 1954. China classically manifests two of the characteristics of development that Lewis had in mind: rising return to education and rural-urban migration. As an underdeveloped country, China began its reform with relatively few highly educated people, and with a small minority of the population (20%) living in cities, where labor productivity was about twice the level as in the countryside.
In pre-reform China there was very little return to education manifested in salaries. Cab drivers and college professors had similar incomes. Economic reform has created a labor market in which people can search for higher pay, and one result of this is that salaries for educated people have gone up dramatically. In the short period between 1988 and 2003, the wage returns to one additional year of schooling increased from 4% to 11%. This development initially leads to higher overall inequality, because the initial stock of educated people is small and they are concentrated at the high end of the income distribution. But if there is reasonably good access to education, then over time a greater and greater share of the population will become educated, and that will ultimately tend to reduce inequality.
The large productivity and wage gap between cities and countryside also drives a high rate of rural-urban migration, which has left millions of children traumatized due to parents who have left them to be raised by other family members, as the Chinese government does not allow parents who move to urban areas to take their children with them. Lewis pointed out that, starting from a situation of 80% rural, the initial shift of some 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 to 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.