China Can Eradicate Extreme Poverty by 2020

Poverty alleviation is the most important part of the SDGs and China has contributed to 70% of that. How did China make it possible and can its experience be applied in other countries? Will other countries shake off poverty and achieve development by learning from China? China proposed to lift all of the poor people in rural areas, under the current standards, out of poverty by 2020. What are the challenges that China faces in achieving this target? What’s new in the joint programs between China and the World Bank? Here is the reply from Mr. Bert Hofman, the World Bank’s former Country Director for China, Mongolia and Korea.

 H.E. Bert Hofman, former Country Director for China, World Bank

China.org.cn: China has contributed over 70 percent of the global poverty reduction accomplishments for the Millennium Development Goals. In your opinion, how did China make the achievements? Can China’s experience be helpful for other developing countries in poverty reduction?

Bert Hofman: Poverty reduction and equality are both parts of the World Bank’s goals, and the former is an important part of the sustainable development goals. The past decades have witnessed a tremendous achievement in poverty reduction worldwide. China, of course, has been a big part of that. The most dramatic results of China’s poverty reduction were in the 1980s, and since then, China has lifted nearly 800 million people out of poverty. China now has a relatively low poverty share: about 55 million people according to the local poverty calculation. According to the international standard, the number is even lower, so China has been greatly successful.

The biggest factor for China’s poverty reduction was growth. Its overall growth has been very high over the last 40 years. It was more than 9% on average before, which meant that a lot of people could find new jobs, better jobs, and more-productive jobs, and therefore lifted themselves out of poverty. It happened because of reforms in the economic system, which started in agriculture. The introduction of the household responsibility system at the end of the 1970s was tremendously important. At that time, most poor people were in the countryside and depended on agriculture. The household-responsibility system increased the agricultural productivity, which was a tremendous boost to poverty reduction.

However, reforms meant more. China had urban reforms, developed socialist-market economy, and entered the WTO. China opened up and urbanized quite rapidly and became a manufacturing hub of the world. That meant a lot of people moved from the rural areas to the urban areas. In the beginning of the reform period, less than 20% of people lived in urban areas; now it’s more than 55%. People found more productive jobs in the manufacturing and service sectors and they made more money.

Policy was also an important factor. First, those people could move. Education policies were important for enabling people to move. Second, China built a lot of infrastructure, which allowed cities grow and absorb all of these people and industries from both domestic and foreign investors, and therefore could create jobs that were necessary. Third, the economic system became increasingly driven by the private sector, which created a lot of jobs, especially in the service and manufacturing sectors. I think these are the very important elements of reforms.

Can China’s experience be replicated to other countries in reducing poverty? I think it’s not that simple. What is important to recognize is that China has its own development path. It had its own past, and it came from a very specific situation. But some elements of what China has done are very important.

First, China’s development started with agriculture. Most of the poor countries also have rural areas and agriculture. Some of them face similar constraints as China did. Strengthening the property rights of farmers was what the household-responsibility system did. It actually gave farmers more ownership to the land. Then people invested more in the land, worked harder, and that increased their income.

Second, China invested in people: making sure that people had the capabilities to benefit from the economic growth that happened through reforms. So, in other words, they could have the capabilities to do a more modern job than they did before. It’s an important element in reforms, and China has done that very well. Other countries can learn from that.

Third, infrastructure was built so that a modern economy could be developed on top of the agricultural economy, which created the jobs that were higher-valued and more productive, and therefore could lift people out of poverty.

The fourth element is important as well: China did a very good effort in focused, targeted poverty interventions. The State Council Leading Group Office of Poverty Alleviation and Development (LGOP) is in phenomenal situation, and we have been working with them for many years. The presence of such an organization meant that it really focuses on the issue of poverty. They developed targeted poverty programs which focus on poor areas and poor people, and helps those who could not benefit from general growth get out of poverty themselves.

China.org.cn: China has set a goal to lift the remaining 55 million poor people out of poverty by 2020. The international community also pledged to eradicate extreme poverty in the world by 2030 as part of the Sustainable Development Goals. To achieve these goals in time, what are the major challenges to China and the rest of the world?

Bert Hofman: For China it’s an ambitious goal. But, at current growth rates and with the current policies, I actually believe that China can achieve it. Of course, this is only extreme poverty. There are still many poor people who are a bit over the poverty line but can still be considered as poor. So you must keep them growing.

Second, we should continue to invest in poor people, making sure that their education system, health system and health assurance are up to speed – health is important and an important cause of poverty in the country. This requires better targeting of public programs and of public money, so it requires reforms.

Third, it is important that the people can move to the most productive places. There are still institutional barriers to mobility of people. Removing them and relaxing them as China has already decided is going to be an important part of this final stretch of poverty reduction.

Fourth, the LGOP is still making efforts in reducing the final poor. This is a tremendous job in putting up a database of who’s poor and who’s not. That allows the programs of the LGOP and the rest of the government to be even better-targeted. So using that tremendous database of poor people for better-targeting of this part of resources that China has is going to be very effective for poverty reduction.

Finally, there will still be poor people, and they need help. Some people can’t benefit from growth; some people can’t benefit from education, because they are disabled or otherwise. For those people China has a system called Dibao – it’s the social safety net. It is going to be the most important tool beyond 2020 to keep people out of poverty. So to make sure that the system is very versatile and well-targeted, and can also absorb new people in the system and graduate people from the system if they are no longer poor. The redesign of Dibao is going to be very important.

China.org.cn: The World Bank and China have had long and productive cooperation in poverty reduction. A good number of poverty reduction projects were supported by the World Bank in the last 30+ years. Are there any differences between the current projects and those back in the 1990s and 2000s? Are there any new features and innovations in the current projects?

Bert Hofman: A lot of things have changed, and it’s actually not just projects that we’ve been doing but also – very importantly – we did poverty analysis and major poverty reviews with the LGOP. They provide the analytical basis to design the next phase of poverty reduction programs. Generation I of those programs was very much aligned with the then-situation, more than 25 years ago, when there were still very many poor counties. In poor counties, most people were poor. So the challenge for us was to help those counties grow. As agriculture was their main industry, we needed investment in agricultural infrastructure, helping people get the right fertilizer, right seeds, and right education to ensure that they could absorb more techniques.

Now, things are very different. We can’t see a lot of poor people in poor counties, but outside poor counties, there are quite a few poor people. So, whether you’re poor or not is decided by what your personal characteristics are: whether you have somebody in the family who works; whether that person has a good education; whether you have anyone sick in the family. Those are personal characteristics that are much more determined of poverty today than it was 30 years ago. So the poverty programs have also changed.

The world now has changed. China has modernized tremendously, so we are looking at very different kinds of programs. One of the programs that we do together with the leading group was to look at the agricultural collectives as a means to reach out to those poor people that are not yet connected to the modern economy, to tie them into the modern supply chain, so that they can get more money for their goods and upgrade the quality standards of the agricultural produce that they bring to the market, and can bring to the market better. That is one example of a very-targeted approach.

We have been looking at the final poor in the country. Some of them are in very remote areas that have actually very little basis for any economic production, so helping those people move is another important element of more-modern poverty reduction effort. To make the final stretch, we are currently debating with the leading group and others on whether we should also introduce those elements in our current efforts to reduce poverty. Modernization of Dibao, targeted systems in support for the education systems, specific support for individual people to get into the education systems… This is the most modern version of our cooperation that we are working on right now.

China.org.cn: As you know, the Global Poverty Reduction and Inclusive Growth Portal was launched in May this year. It is supported by the World Bank and Asian Development Bank. Could you share with us your comments on the newly-launched portal? What role can ICT and knowledge sharing play in better serving poverty reduction?

Bert Hofman: First of all, it was a tremendous joy – I was there at the opening of the launch of the portal. We think it was a major step. There are a couple objectives of the portal. The first is knowledge-sharing. Anybody who has a very good success story in China or elsewhere could put it up on the portal, and people could learn from it. I think that is a very important part.

Second, ICT can play a big role in poverty reduction on the line. One aspect of this is access to finance. Access to finance and ICT are a tremendously strong combination. Twenty years ago if you needed access to finance, you needed to have a bank and were able to go there, and you needed to have an identity. Nowadays, you can actually get a credit based on your payment history on the Internet. That’s maybe a bit too far for the poor, but there’s another element that we’re looking at, and that is e-commerce. Before, if you were in an isolated village, you were isolated: You couldn’t access to the markets; you didn’t know about the prices; you didn’t know about the world out there. With IT access, you do get all that information through the portal or elsewhere. You can also tie into the modern supply chain and the modern economy. The Alibaba Villages are very famous, and they are largely in some of the richer parts of the country. Now the World Bank is working with Alibaba, to study and to see how those villages actually emerged, and whether we can use that model for the poor villages that are still in the hinterland in the western part of the country, so that e-commerce becomes a vehicle for people to get better off. We think it is a tremendous opportunity.

The third one would be identification. We have talked about the poverty targeting and a system for the database for targeting. Updating that and warranting that people are “certified poor” requires a lot of IT as well. In India there is a tremendous program ensuring everybody has an ID which includes his/her social-economic data. The government can use the data to design better programs to target poverty.