China's plan to eliminate poverty by 2020

Eliminating rural poverty is one of the main policy goals of the president, Xi Jinping.

Written by The Economist Intelligence Unit

Identified as one of "three tough battles" for economic policy in 2018, it is also central to the commitment of the Chinese Communist Party (CCP) to deliver a "moderately prosperous society" by 2021—when the ruling party will mark its 100th anniversary. The political and financial capital invested in the campaign suggests that it will be successful. But the government's approach to poverty alleviation also risks having contradictory effects and could leave parts of the population more vulnerable.

Significantly reduced in the reform and opening era, residual poverty is still widespread in China's rural areas. At end-2016 there were still over 40m people living below the poverty line, a standard that was officially defined in 2011 as those with an annual income of less than Rmb2,300 at 2010 constant prices (US$340 at the 2010 market exchange rate). Taking account of inflation, this would have been equivalent to a nominal income of around Rmb3,000 in 2016. China's definition of the poverty line is thus higher than the global standard of US$1.9 a day (at 2011 prices) in purchasing parity terms (PPP), adopted by the World Bank in 2015: in PPP terms, an income of Rmb3,000 in 2016 would have been equivalent to around US$2.4 per day.

A more intense campaign

Mr Xi's campaign is not new, but is being implemented with greater intensity than before. His government has noticeably stepped up its financial support: poverty reduction funds allocated under the central government budget ran to Rmb282.2bn (US$41.7bn) in 2013–17, more than double the level of the previous five years, with big jumps in 2016 and 2017 (the poverty elimination goal was announced by Mr Xi in 2015). Local government funding is likely to have been stepped up, although accurate data on this are not available. Financial institutions—mainly the Agricultural Development Bank of China, Agricultural Bank of China and Rural Credit Co-operatives—have also increased their contribution via credit provision for relevant projects.

 

Political pressure on local agencies has also increased. Mr Xi's government has backed mass campaign-style movements around poverty alleviation in addition to regular inspections of targeted areas. The central government has set poverty alleviation as a criterion on which officials will be evaluated, in addition to traditional indicators such as GDP and social stability. County governments in impoverished areas have been given strict targets for how many people will be lifted out of poverty each year between 2016 and 2020. They have less discretion in choosing where to invest poverty alleviation funds and oversight by the CCP's anti-corruption agencies has also been enhanced. The main implementing agency, the Leading Group for Poverty Alleviation and Development, is headed by a vice-premier, Wang Yang, who was promoted to the CCP politburo standing committee in October 2017.

Campaign features

Funds deployed under the poverty alleviation campaign cover several areas, including financing for rural infrastructure, agricultural subsidies and discounted loans. The broad goal of such assistance is to encourage self-development and empowerment of poor populations—rather than providing a handout from the government. Under Mr Xi the campaign has several hallmarks:

  • Targeted
  • Mr Xi's government has backed "precision poverty alleviation", reflecting the fact that his administration must focus on the last pockets of rural poverty if it is to eliminate it by 2020. In practice, this means that the authorities are increasingly targeting individual households in need of support, instead of whole villages or counties.

    But the main bulk of poverty relief funding is now provided individually. It is also assessed partly on total household assets, as opposed to income only, in order to uncover hidden sources of wealth. Poor households are then classified into categories, according to the poverty reduction strategy adopted. Moreover, since 2012 welfare programmes are increasingly targeting the rural poor, the ill and handicapped, and the destitute, as key recipients.

  • Market-oriented
  • The campaign has also deployed more market mechanisms in the fight against poverty. This continues a transition already under way before Mr Xi came to power of shifting from non-conditional cash transfer programmes to paid-use help in the form of loans, wages or subsidies.

    A good example of the current government's approach has been in south-western Guizhou province, where its CCP secretary until July 2017, Chen Min'er, backed pilots in "industrial poverty relief", whereby enterprises are encouraged to invest capital in development projects. In some places, poverty relief funds have been given to farmers, who in turn must invest them in leading local enterprises. For the government, this is a way to increase investment efficiency and promote self-help, while moving away from an assistance-based approach. Mr Chen is a close ally of Mr Xi.

    The central government's "mass entrepreneurship and innovation" campaign has also introduced additional market elements into the campaign, offering incentives and loans for rural residents to take on self-employment and create small businesses in rural areas. Besides, reforms to the land ownership system may affect rural poverty. In 2014 rural land rights were divided into ownership rights (which remain collective), operating rights (permitting individuals to cultivate land) and contracting rights (forming the legal basis for transacting land). In theory, this will facilitate land transactions and establish a framework for developing rural land mortgage loans.

  • Resettlement
  • Finally, there has been a renewed emphasis on resettlement as an approach to tackling poverty alleviation. The strategy dates back to the previous administration's "new socialist countryside" policy, aimed at bringing rural residents to small towns, thus allowing for urbanisation and agricultural modernisation. The urbanisation strategy released by Mr Xi's government in 2014 had a similar focus on migration to smaller conurbations. The major difference, however, is in the scale of the ambition: during the 13th five-year plan period (covering 2016–20), 10m people nationwide are targeted for resettlement, up from 2.4m during the 12th five-year plan period (2011–15).

Gains and risks

Mr Xi's poverty alleviation campaign appears to have been effective to date. The 43.4m officially below the poverty line at end-2016 represented a significant fall from the 99m under the benchmark at end-2013, representing an average annual decline of 13.9m. If a similar rate of decline can be maintained, the government ought comfortably to reach its target of eliminating rural poverty by 2020. The inclusion of the campaign as one of the "three tough battles" for policy in 2018 also promises additional support for the programme this year beyond what it has already received.

Nevertheless, despite its benefits, there are drawbacks associated with the policy drive. One concern is the reduction in assistance provided by dibao, a social transfer system that provides a minimum living-standard guarantee. Public expenditure associated with the transfer, which has become seen as inefficient, has stagnated in the countryside and fallen in urban areas as the poverty alleviation drive has intensified. This could deprive some segments of the population of an important source of revenue, particularly those just above the poverty line not targeted under the current drive.

 

Other aspects of the campaign could also have damaging consequences. For example, rural pro-entrepreneurship policies often do not benefit those that need the most support: tax breaks and incentives instead will flow to budding entrepreneurs and those with local government connections, rather than the impoverished. Resettlement programmes have also been problematic, with local governments seeing it also as a means to appropriate land for industrial and commercial use. Without their land, farmers lose a crucial security net and their most valuable asset.

While the official elimination of poverty thus looks set to become one of the main legacies of Mr Xi's term in power, instances of poverty will still persist—after all, the concept is a relative one. As we have written previously, the broader challenge of tackling widening wealth inequality will extend far beyond 2020.

A feature by The Economist Intelligence Unit