- Poverty in China
Povertyin China refers to people whose income is less than a poverty lineof $1 per day (PPP) set by the World Bankbenchmark (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 incomeand 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 inequalityhas 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.
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 mortgagerural land has further reduced opportunities. China has a uniquely decentralizedfiscal system that has relied on local governmentto 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 surplusthat 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 investmentand 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 Bankestimates that more than 60% of the population was living under its $1 per day (PPP) poverty lineat 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 resourcescarcity 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 inequalitywas 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 tenureover 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
educationaloutcomes and healthstatus, 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.
trade surplusthat has emerged in China have exacerbated the inequalities and makes them harder to address. The trade surplus stimulates the urban manufacturingsector, which is already relatively well off. It limits the government’s scope to increase funding for public servicessuch 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 macroeconomichealth and the situation of the relative poor in China.
Recent government measures to reduce disparities including relaxation of the hukou system, abolition of the agricultural tax, and increased central transfers to fund health and education in rural areas.
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%.
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 accountmore 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 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 investmentin 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. [Lardy, Nicholas R., 2002. [http://www.asiasociety.org/speeches/lardy.html The Economic Future of China.] ]
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.Dollar, David R., Wei, Shang-Jin, 2006. [http://www.nber.org/papers/w13103 Das Wasted Kapital.] IMF Working Paper.] Local governments in coastal cities have lowered loss of output due to unreliable power supply to 1.0% and
customsclearance time for imports has been lowered in Chinese cities to 3.2 days.
China’s sustained growth fueled historically unprecedented poverty reduction. The World Bank uses a
poverty linebased 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 caloriesof nutritionper 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.Ravallion, Martin, and Shaohua Chen, 2005. China’s (Uneven) Progress Against Poverty. Journal of Development Economics.]
This poverty reduction has occurred in waves. The shift to the
household responsibility systempropelled 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.Dollar, David R., Hallward-Driemeier, Mary, Mengistae, Taye, 2005. Investment Climate and Firm Performance in Developing Economies. Economic Development and Cultural Change 54(1), 1-31.]
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.Eastman, R. and M. Lipton, 2004. Rural and Urban Income Inequality and Poverty: Does Convergence between Sectors Offset Divergence within Them? in G. A. Cornea, ed., Inequality, Growth and Poverty in an Era of Liberalization and Globalization, Oxford U. Press, 112-141.] (See
List of countries by income equality.)
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 productivitywas 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 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 industrializationperiod 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.
Restrictions on migration
Pre-reform China had a system that completely restricted people’s mobility, and that system has only been slowly reformed over the past 25 years. Each person has a registration (
hukou) in either a rural area or an urban area, and cannot change the hukou without the permission of the receiving jurisdiction. In practice cities usually give registration to skilled people who have offers of employment, but have generally been reluctant to provide registration to migrants from the countryside. Nevertheless, these migrants are needed for economic development, and large numbers have in fact migrated. Many of these fall into the category of "floating population". There are nearly 200 million rural residents who spend at least six months of the year working in urban areas. Many of these people have for all practical purposes moved to a city, but they do not have official registration. Beyond the floating population, there are tens of millions of people who have left rural areas and obtained urban hukous.
So, there is significant rural-urban migration in China, but it seems likely that the hukou system has resulted in less migration than otherwise would have occurred. There are several pieces of evidence to support this view. First, the gap in per capita income between rural and urban areas widened during the reform period, reaching a ratio of three to one. Three to one is a very high gap by international standards. Second, manufacturing
wages have risen sharply in recent years, at double-digit rates, so that China now has considerably higher wages than much of the rest of developing Asia (India, Vietnam, Pakistan, Bangladesh). This rise is good for the incumbent workers, but they are relatively high up in China’s income distribution, so that the wage increases raise inequality. It is hard to imagine that manufacturing wages would have risen so rapidly if there had not been such controls on labor migration. Third, recent studies focusing on migrants have shown that it is difficult for them to bring their families to the city, put their children in school, and obtain healthcare. So, the growth of the urban population must have been slowed down by these restrictions. [Sicular, T., X. Yue, B. Gustafsson, and S. Li, 2007. The Urban-Rural Income Gap and Inequality in China, Review of Income and Wealth, 53(1): 93-126.]
Though, it should be noted that China’s
urbanizationso far has been a relatively orderly process. One does not see in China the kinds of slums and extreme poverty that exist in cities throughout Asia, Latin America, and Africa. Nevertheless, urbanization goes on: the urban share of China’s population has risen from 20% to 40% during the course of economic reform. But at the same time the hukou system has slowed and distorted urbanization, without preventing it. The system has likely contributed to inequality by limiting the opportunities of the relatively poor rural population to move to better-paying employment.
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 rightsover land are mediocre. In urban areas people can easily sell their land and buildings, or mortgagethem to borrow. In rural areas, peasants have long-term tenureas 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 advantagelies 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.
In China, that conversion is handled administratively, requiring central approval. Farmers are compensated based on the agricultural value of the land. But the reason to convert land – especially in the fringes around cities – is that the commercial value of the land for urban use is higher than its value for agriculture. So, even if China’s laws on land are followed scrupulously, the conversion does not generate a high income for the peasants. There are cases in which the conversion is done transparently, the use rights over the land
auctioned, and the revenue collected put into the public budgetto finance public goods. But still the peasants get relatively poor recompense. One government study found that 62% of displaced peasants were worse off after land conversion.Dollar, David and Bert Hofman, forthcoming. Intergovernmental Fiscal Reforms, Expenditure Assignment, and Governance. In, Jiwei Lou and Shuilin Wang, eds., China: Public Finance for a Harmonious Society]
Furthermore, one reads in the pressFact|date=January 2008 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
collateralfor 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 assetheld by the poor.
Fiscal system and rural social services
Market reform has dramatically increased the return to
education, as it indicates that there are good opportunities for skilled people and as it creates a powerful incentive for families to increase the education of their children. However, there needs to be strong public support for education and reasonably fair access to the education system. Otherwise, inequality can become self-perpetuating: if only high-income people can educate their children, then that group remains a privileged, high-income group permanently. China is at some risk of falling into this trap, because it has developed a highly decentralized fiscal system in which local governments rely primarily on local taxcollection to provide basic services such as primary education and primary health care. China in fact has one of the most decentralized fiscal systems in the world. [Barro, Robert J., Lee, Jong-Wha, 2000. [http://www.nber.org/papers/w7911.pdf International Data on Educational Attainment: Updates and Implications.] NBER Working Paper No. 7911.]
China is much more decentralized than
OECDcountries and middle-income countries, particularly on the spending side. More than half of all expenditure takes place at the sub-provincial level. In part, the sheer size of the country explains this degree of decentralization, but the structure of government and some unusual expenditureassignments also give rise to this pattern of spending. Functions such as social security, justice, and even the production of national statisticsare largely decentralized in China, whereas they are central functions in most other countries.
Fiscal disparities among subnational governments are larger in China than in most OECD countries. These disparities have emerged alongside a growing disparity in economic strength among the provinces. From 1990 to 2003, the ratio of
per capita GDPof the richest to poorest province grew from 7.3 to 13. In China, the richest province has more than 8 times the per capita public spending than the poorest province. In the US, the poorest state has about 65 percent of the revenues of the average state, and in Germany, any state falling below 95 percent of the average level gets subsidized through the " Finanzausgleich" (and any receiving more than 110 percent gets taxed). In Brazil, the richest state has 2.3 times the revenues per capita of the poorest state.
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. 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.
These differences in public spending translate into differences in social outcomes. Up through 1990, there were only modest differences across provinces in
infant survival rate, but by 2000 there had emerged a very sharp difference, closely related to the province’s per capita GDP. So too with the high-school enrollmentrate: there used to be small differences across provinces. By 2003, high-school enrollment was nearing 100% in the wealthier provinces while still less than 40% in poor provinces.Barro, Robert J., Lee, Jong-Wha, 2000. [http://www.nber.org/papers/w7911.pdf International Data on Educational Attainment: Updates and Implications.] NBER Working Paper No. 7911.]
There is some redistribution within China’s fiscal system, but not enough. Poor areas have very little tax collection and hence cannot fund decent basic education and health care. Some of their population will relocate over time. But for reasons of both national efficiency and
equity, it would make sense for the state to ensure that everyone has good basic education and health care, so that when people move they come with a solid foundation of human capital.
China’s highly decentralized fiscal system results in
local governmentin many locations not having adequate resources to fund basic social services. As a consequence, households are left to fend for themselves to a remarkable extent. The average hospital visit in China is paid 60% out-of-pocketby the patient, compared to 25% in Mexico, 10% in Turkey, and lower amounts in most developed countries. Poor households either forego treatment or face devastating financial consequences. In the 2003 National Health Survey, 30% of poor households identified a large health care expenditureas the reason that they were in poverty.
The situation in education is similar. In a survey of 3037 villages in 2004, average primary school fees were 260
yuanand average middle-school fees, 442 yuan. A family living right at the dollar-a-day poverty line would have about 900 yuan total resources for a child for a year; sending a child to middle-school would take half of that. Not surprisingly, then, enrollment rates are relatively low in poor areas and for poor families.Zhang, Junsen, Yaohui Zhao, Albert Park, and Xiaoqing Song, 2005. Economic Returns to Schooling in Urban China, 1988-2001. Journal of Comparative Economics 33: 730-752.]
* Digital divide in China
Young China Scholars Poverty Research Network"
List of countries by percentage of population living in poverty
* Countries by fertility rate
Cycle of poverty
Diseases of poverty
Feminization of poverty
Food vs fuel
IQ and Global Inequality
IQ and the Wealth of Nations
Ten Threatsidentified by the United Nations
Make Poverty History
The Hunger Site
List of famines
2007–2008 world food price crisis
Organizations and campaigns
List of charities in China"
List of NGOs in China"
Abahlali baseMjondolo- South African Shack dwellers' organisation
Brooks World Poverty Institute
* Catholic Charities USA [ [http://www.catholiccharitiesusa.org/poverty Campaign to Reduce Poverty in America] ]
Center for Global Development
Child Poverty Action Group
Five Talents- Gives poverty stricken people another chance
Free the Children
Grameen BankA micro lending bank for the poor.
MicrogivingDirect charitable giving
Global Call to Action Against Poverty(GCAP)
* (White Band Day 4)
International Fund for Agricultural Development
Southern Poverty Law Center
Make Poverty Historycampaign
Mississippi Teacher Corps
United Nations Millennium Campaign[ [http://www.endpoverty2015.org/ United Nations Millennium Campaign] ] [ [http://www.standagainstpoverty.org/ Stand Against Poverty] ]
World Food Day
The Red Letters Campaign[ [http://www.redletterscampaign.com/ The Red Letters Campaign] ]
* [http://www.adb.org/Documents/Reports/Poverty_Profile_PRC/PRC.pdf Poverty Profile of People's Republic of China] -
Asian Development Bank(ADB)
*Azizur Rahman Khan, Carl Riskin. (2001) "Inequality and Poverty in China in the Age of Globalization." Oxford University Press ISBN 0195136497
* [http://unescap.org/stat/meet/povstat/pov7_chn.pdf Poverty Statistics in China] United Nations Economic and Social Commission for Asia and the Pacific
* [http://www.undp.org.cn/ United Nations Development Programme in China]
* [http://en.cpad.gov.cn/ The State Council Leading Group Office of PovertyAlleviation and Reduction]
* [http://www.fupin.org.cn/en/index.asp China Poverty Alleviation Foundation]
* [http://www.iprcc.org.cn/index.php/en/ International Poverty Reduction Center in China]
* [http://www.gwu.edu/~econ270/Taejoon.html Income disparity in China] China: a shared poverty to uneven wealth?
* [http://www.econ.ucdavis.edu/faculty/woo/1%20Oct%2004.Woo.China%20Poverty.pdf The Poverty Challenge for China in the New Millennium]
* [http://www.stats.gov.cn/english/newsandcomingevents/t20050513_402249491.htm Communiqué on 2004 Rural Poverty Monitoring of China] -
National Bureau of Statistics of China
* [http://www.eeo.com.cn/ens/Politics/2008/04/17/97126.html China To Raise Poverty Line]
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