Developing Asia is one of the most dynamic regions in the world.
This dynamism - reflected in the region's high growth rates - has
been a key driver of reductions in extreme poverty. For instance,
in 1990, 34 percent of developing Asia's population lived under the
$1-a- day poverty line. There are good reasons to believe that this
percentage is now below 20.
However, not all countries in the region have experienced large
reductions in poverty and the incidence of extreme poverty in many
countries remains too high - afflicting between one-fifth and
one-third of the population. In this context, it is important to
consider the experience of China in reducing poverty. What lessons
does this experience provide for policymaking?
The first lesson has to do with the importance of economic
growth. Rapid economic growth in China has been a key driver of
poverty reduction. An analysis of the country's household survey
data indicates that economic well being, or the standard of living,
for all segments of the people including the poorest, has improved
significantly. In fact, millions have been lifted out of poverty in
China in the past two decades as compared with other regions of
developing Asia.
In particular, the poorest 20 percent in China have seen their
expenditures increase by an average of 3.4 percent per annum
between 1993 and 2004 even after making allowances for
inflation.
This rate of increase is higher than that registered by any 20
percent group, rich or poor, in a majority of other developing
Asian countries. The situation is similar if one were to look at
the poorest 40 percent.
The high growth of per capita expenditures of the poorer
segments of the population in China suggests that the incidence of
poverty in terms of international benchmarks has declined. In fact,
a careful look at household survey data from the early 1990s
onwards indicates that the country has achieved remarkable declines
in poverty.
In terms of the $1-a-day poverty line, commonly used for making
international comparisons, the poverty rate - the proportion of the
population living under the poverty line - was almost 30 percent in
1993. By 2004, the poverty rate had declined by almost
two-thirds.
What is equally significant is that the PRC's track record in
reducing poverty is maintained even if poverty is measured in terms
of the $2-a-day poverty line. While the $1-a-day poverty line is
close to the national, or official, poverty lines typically used in
low-income countries, the $2-a-day poverty line is more commonly
found in low- to middle-income countries.
Thus, while the $2-a-day poverty rate in China was as high as
64.5 percent in 1993, it had fallen to 37.8 percent by 2004. Once
again, very few countries can match such a large reduction in
poverty in a matter of just about a decade. This can be clearly
seen from the chart, which describes the implied average annual
percentage point reduction in poverty rates for developing Asian
countries for which data on poverty rates from the early 1990s is
available. Along with Vietnam, China is the only other country
experiencing a reduction in $2-a-day poverty rates of two
percentage points or more per year on average since the early
1990s.
What about the future? The robustness of China's economic growth
provides good reasons for optimism that the country's track record
in reducing poverty and uplifting incomes of the poorer segments of
society will continue. However, there are some issues that may need
to be addressed by China in order to ensure that growth continues
to translate into solid gains for the poor.
And this is where the second lesson for developing Asia comes
in. The rate of economic growth is not the only factor which
influences how much poverty will go down by. What is also important
is the pattern of growth. Since the poor tend to be
disproportionately located in rural areas and dependent on the
agriculture sector, more and better paying economic and job
opportunities for those in rural areas, including better
performance of agriculture is crucial for poverty reduction.
As Premier Wen Jiabao noted in his address to the 10th National
People's Congress earlier this year, the patterns of growth across
the primary, secondary, and tertiary production sectors in the
country have displayed unevenness, as has growth across urban and
rural areas, as well as among the different regions of the
country.
Bringing in a better balance across these different production
sectors and locations will be very important for growth to
translate into better economic opportunities for those working in
agriculture, and residing in rural areas and in certain regions,
especially those in the interior of the country.
This lesson is equally applicable to other developing countries
in Asia, especially those in South Asia.
Of course, some of the evenness and growth across production
sectors and locations is to be expected in a country that is
growing so fast as China's, and experiencing such rapid structural
transformation.
As observed by Nobel laureate Arthur Lewis, it is common to
expect imbalances during the process of economic development. This
is because it is unlikely for economic growth to start in every
part of an economy at the same time. In the context of China, this
can be most clearly seen in the rapid development of the coastal
provinces, which by virtue of having lower transportation costs to
major international markets, have been the first to benefit from
the country's integration into the global economy.
Nevertheless, policies can be designed to confront imbalances if
these become too large. In this context, policymakers in the PRC
are already taking action. The creation of a "harmonious society" -
a concept which underscores the importance of proper balance across
the different parts of an economy and society - has been accorded
top priority in the country's 11th 5-year plan.
It is interesting to note that other countries in the region are
also striving for greater balance across the different sectors of
their economies. In India, the 11th 5-year plan combines the
objective of raising economic growth with making it more
"inclusive". In Thailand, a key element of its "sufficiency
philosophy" is growth with equity. A similar theme can be found in
Vietnam's socio-economic development strategy.
Coming back to the case of the PRC, a variety of policy
initiatives have been put in place or are in the planning stage.
These initiatives are in the right direction. For example, an
important driver of inequality in China is slow growth of rural
incomes. Reductions in agricultural taxes and fees in the country
are being undertaken precisely to address rising urban-rural
imbalances.
Rising urban-rural imbalances should also be dampened by
modifications that are being made to the hukou system, the
registration system that can constrain migration numbers from rural
areas to more dynamic urban areas. Increases in outlays for basic
education and health care are being made, especially for
disadvantaged rural areas.
There is also the introduction of the dibao (minimum livelihood
guarantee scheme) social protection scheme designed to help the
poorest and most vulnerable. Implemented effectively, these various
policy initiatives will prove to be important instruments in
helping the PRC achieve growth that is more balanced both across
regions as well as across households.
(China Daily October 16, 2007)