Inclusive Growth and Poverty Reduction in PRC as Emerging Middle Income Country

Li Xiaoyun, Wang Xiaolin, Li Linyi

Prepared for the Regional Workshop on Social Inclusiveness in Asias Emerging Middle Income Countries 13 September 2011, Jakarta, Indonesia

Outline
1. Poverty Reduction in PRC 2. Drivers of Poverty Reduction in PRC 3. Challenges for Inclusive Growth and Poverty Reduction in PRC 4. What can other countries learn from PRC 5. Recommendations

1. Poverty Reduction in PRC

PRCs remarkable poverty reduction in the past 30 years
PRCs poverty has been largely in rural areas
1000 900 800 700 600 500 400 300 200 100 0 1981 1984 1987 1990 1993 1996 1999 2002 2004 $1.08 a day PPP 1993 price $ 2.15 a day PPP 1993 price

Poverty incidence : from 88.12% in 1981 to 34.89% in 2004

Poor population: from 250 million in 1978 to 13 million in 2008 (PRCs poverty line) Since 1981, PRC shares 75% of the global poverty reduction Low income population: 62.13 million in 2000 to 27.07 million in 2008

30000 25000 20000 15000 10000 5000 0

19 78 19 81 19 90 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

Absolute poverty population Low income population Total poverty population

1. Poverty Reduction in PRC

Poverty Depth
- The poverty gap index decreased from 4.99 in 2001 to 0.8 in 2007 - Squared poverty gap index also dropped from 1.75 in 2001 to 0.2 in 2007
6 5 4 3 2 1 0 2001 2003 2004 2005 2006 2007

Poverty Gap Index

Squared Poverty gap Index

Urban poverty
- Emerged during the middle of the 1990s due to an increasing number of laid off workers under the structural adjustment - Underemployed, laid off, retired and elderly - Urban Minimum Living Standard
Urban Minimum Living Standard and Urban Poverty Population in PRC

2004 CNY/month/capita Population 10,000 152 2205

2005 156 2234

2006 169 2240

2007 182 2272

2008 205 2235

2009 228 2346

2010 252 2311

2011 271

2. Drivers of Poverty Reduction

2.1 Inclusive growth Pro-poor economic growth: get the majority of the poor employed High economic growth and rapid agricultural growth The poverty-agricultural growth elasticity was 1.51%, the poverty-industry elasticity was 1.07%, and the service sector was 0.97% during 2000 to 2008

2. Drivers of Poverty Reduction

2.2 Strategies, policies and institutions for inclusive growth and poverty reduction Targeted poverty reduction program
The State Council Leading Group for Three West Areas Agricultural Development: Three West Areas Development Program The State Council Leading Group Office of Poverty Alleviation and Development (LGOP) System

Oriented and regional development based rural poverty reduction program : the poor to take part in development opportunities
Eight-Seven Poverty Reduction Program 592 poor counties

The Poor Village Poverty Alleviation Program : more equal access for the poor to development opportunities
14,8200 poor villages

2. Drivers of Poverty Reduction

2.3 PRCs Rural Social Protection Programs
Fiscal transfer to agriculture and transferred income to poor farmers
Food crop subsidy, seed subsidy, farm machine subsidy, inputs subsidy

New Rural Cooperative Health Program and access to health care

Up to 2009, 833 million rural populations has jointed the program, over 94 % of rural population now covered by the program. In 2004, two exempt and one subsidy (exempt the tuition fee, charges for books and materials and subsidy for boarding fee for the poor households) In 2006, free fee compulsory education program

Rural Compulsory Education Program and access to education

Rural Minimum Living Standard Program and Rural Five Guaranteed Program
Total beneficiaries reached to 42.843 million rural poor in 2008

New Rural Old Pension Program

Initiated in 2009, aiming to become national wide to cover potential 45 million rural old people in 2012

3. Challenges for Inclusive Growth and Poverty Reduction

3.1 Macro level economic constraints and income inequality

Middle income trap Stagnating global market after financial crisis Competiveness due to increasing labor costs; employment of labor-intensive industry Inflation over recent years Limited domestic consumption esp. rural population Government expenditure on increased need for social protection programs Aging population More income inequality

Gini coefficient in PRC 0.6 0.5 0.4 0.3 0.2 0.1 0 1978 1995 2000 2001 Rural 2002 Urban 2003 2004 2005 2006

National

Farmers Income Increase 5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007

National average The average in the poor villages Relative poor

The average in the poor counties Absolute poor

 3.2 Poverty leakage in urban and rural areas due to an inadequate poverty line
Rural poverty line based on Martin method and adjusted with CPT every year Real purchasing power declined Serious underestimation of the rural population creates difficulty to legitimate increasing resources both politically and publicly
In 2004, the urban minimum living standard line was only 68% of the poverty line calculated based on Martins method
Share of Rural Poverty to the Net Rural per Capita Income 7000 6000 5000 4000 3000 2000 1000 0 1985 1990 1995 2000 2005 2009 Net rural income (CNY/year/capita) Poverty line (CNY/year)

Urban Poverty Line and Urban Minimum Living Standard Line in 2004 4000 3500 3000 2500 2000 1500 1000 500 0 East Region Central region Poverty line West Region Minimum line National

3.3 Non-income poverty Health and poverty

0.12 0.1 0.08 0.06 0.04 0.02 0

Expenditure to Health to the Total Expenditure in Rural China (%)

2000

2001

2002

2003

2004

2005

2006

2007

2008

The poor villages

The poor counties

Rural average

Education Expenditure to Total Family Expenditure for the Poor (%) 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2002 2003 2004 2005 2006 2007 2008 The poor village The poor counties Rural Average

Education and poverty

3.4 Social transformation and transitional poverty

Migrate workers and poverty risk 150 million migrants and still increasing social exclusion; lack of social protection Landless farmers Agricultural land converted to other use; land as an important form of social security Left-behind people elderly, children and women

3.5 limited participation and exclusion

Uneven participatory village development program Project design vs. the urgent needs of villagers Elite capture

3. Challenges for Inclusive Growth and Poverty Reduction

3.6 The role of the PRC in international development
PRC as one of the important players in international development PRCs aid program to other developing countries in a nonconditional way: grant, non-interest loan and favorable loan scheme Welcomed by most receipt countries, while not complying with the OECD/DAC framework

Whether it could accompany the transfer of PRCs technology as well as its poverty reduction experiences and lessons to receipt countries? Whether it affects the collective efforts to improve the aid effectiveness to receipt countries?

4. What can other countries learn from PRC

High sustained economic growth and population dynamics Development of agricultural sector Breaking through the vicious cycle of inequality and poverty Effective developmental state: commitment,

implementation capacity, and consistent development and poverty reduction strategies and policies

Taking right-based approach seriously to avoid transitional lessons

5. Recommendations
To establish an urban-rural integrated development model to benefit the entire poor population To adjust its urban and rural poverty line and also to enhance participation of the poor to reduce the leakage of the poor To develop new rural poverty reduction strategy to cope with the middle income challenges

To integrate inclusive growth and poverty reduction into its development assistance program

Thank you for your attention!

Contact: xiaoyun@cau.edu.cn wangxl@iprcc.org.cn lilinyi@iprcc.org.cn