WB on China's poverty alleviation: lessons and next steps

Editor’s note: China's State Council Information Office issued a white paper titled "Poverty Alleviation: China's Experience and Contribution" on April 6. China.org.cn had a written interview with Mr. Martin Raiser, World Bank’s Country Director for China and Mongolia, and Director for Korea, and he shares his opinions on China’s poverty alleviation efforts, experiences and lessons, five-year transition period for the counties just emerged from poverty, and China’s rural revitalization.

Martin Raiser (third from the right) visits the World Bank-supported Guangxi Poverty Reduction Program for Results in November 2020. [Photo courtesy of the World Bank]

China.org.cn: China eliminated extreme poverty on schedule despite the impact of the COVID-19 pandemic. What do you think of the country’s poverty alleviation efforts? What are the most important experiences and lessons that it can share with the rest of the world to assist their poverty reduction and sustainable development?

Raiser: China’s poverty reduction experience spans more than four decades. At the heart of it is a story of rapid economic growth and structural transformation, from a predominantly rural low-income country to an industrialized and urbanized upper middle-income country. This transformation has allowed hundreds of millions of Chinese to find better jobs and lift themselves out of poverty. China’s rapid economic growth has benefited from some favorable initial conditions, including a relatively well-educated population, a high domestic savings rate, and the role played by the Chinese diaspora. China’s reform and opening-up policies were able to transform these advantages into a sustained period of rapid growth. The policy lessons emerging from this experience are consistent with those from other high growth episodes in East Asia and elsewhere and essentially include sound macroeconomic management, outward orientation, public investments in infrastructure and human capital, and structural policies broadly consistent with comparative advantage and supportive of competition. A good summary can be found in the report of the Growth Commission which includes a case study on China’s growth over the first three decades of reform and opening-up.

Once China reached upper middle-income levels and the extreme poverty rate fell below 10 percent, the broad and place-based development policies were no longer sufficient to lift all boats. China thus had to adopt more targeted poverty reduction policies to support those households left behind in the first phase of economic growth, which required an approach specific to individual circumstances. Here one lesson emerging from China’s experience is the importance of basing targeted support on robust evidence. China did a comprehensive survey of its poor households at the start of the targeted poverty reduction campaign in 2015 and this certainly facilitated setting realistic targets, directing resources where they would have the biggest impact, and carrying out continuous monitoring and evaluation. The second lesson to highlight is that China’s poverty reduction efforts included multiple stakeholders. Indeed, the resources mobilized from enterprises and financial institutions far exceeded the resources provided for by central and local government budgets. An important achievement has been the coordination of these various stakeholders and this has benefited from China’s strong mobilization and administrative capacity. Indeed, the administrative effort invested in this task, including thousands of officials stationed in the field is an important feature and likely contributed to its success. We are currently working with the Center for International Knowledge on Development under the State Council to draw some of these lessons and will soon provide a more detailed assessment.

However, while China’s authorities have used data to identify poor households and target poverty reduction efforts, this underlying data is not widely available to the research community. As a result, robust quantitative evaluations of various government policies in terms of their efficiency are missing. This makes it more difficult to transfer and adapt China’s experience to other countries. China would make it easier for policy makers elsewhere to learn from its experience if it opened the data and evidence collected to a wider public.

Martin Raiser (first from the right) visits the World Bank-supported Guangxi Poverty Reduction Program for Results in November 2020. [Photo courtesy of the World Bank]

China.org.cn: China has set a five-year transition period for the counties just emerged from poverty and these counties will continue to enjoy the main support policies. What do you think of this interim period?

Raiser: Poverty in modern economies is often a transitory phenomenon. In other words, it is to be expected that households move in and out of poverty as a function of losing employment, rapid structural changes in the economy, natural disasters or personal health or other calamities. Therefore, it is appropriate to continue to monitor households that have recently escaped extreme poverty and be ready to provide additional support as needed. However, the general argument about the transitory nature of poverty in modern economies applies not just to the 95 million people that were identified in the 2015 survey of poor households. Indeed, during the COVID-19 pandemic a large number of people faced economic shocks and were forced to draw down savings to make ends meet. The targeted poverty reduction policies do not cover all of these potentially vulnerable households. The transition period envisaged under the 14th Five Year Plan could be an opportunity to expand the scope of government assistance and integrate the targeted poverty reduction policies with the regular system of social protection (both social assistance transfers and social insurance mechanisms, e.g. unemployment insurance) covering vulnerable households in both rural and urban areas. We would encourage the authorities to use the next five years as a period to plan and begin to implement the transition to a unified social protection system. This will not only be important to permanent address issues of vulnerability but also to facilitate the adjustment of the economy to a new, service and innovation-based growth model.

China.org.cn: Relative poverty still exists in China. It is very important to engage in rural revitalization and balance urban and rural development. What are the opportunities and challenges that China is facing in this regard? How to redirect resources to rural revitalization? Does the WB have any cooperation programs with China and future plans to address relative poverty?

Raiser: The gap between average incomes in rural and urban areas is still very large in China. Note that this gap can be narrowed both by investing resources in rural areas to raise incomes there, and by allowing people from rural areas to move to cities, thereby raising the incomes of those that move and the incomes of those that stay behind, because with fewer people there is a need to and less resistance against measures to increase the productivity of activities in rural areas. This general point is important, because China still has unfilled potential to increase urbanization rates and the country’s aggregate productivity could benefit significantly from allowing people to move to where the high value-added occupations are. This does not mean, however, that specific policies to improve economic and social conditions in rural areas are not important. First and foremost among these are investments in public services, particularly in ensuring the quality gap in health and education services is reduced. This will help children in rural areas, whose families are not able to move to cities, enjoy similar opportunities to their urban peers. And it will help the elderly in rural areas reduce the risks of suffering health shocks that could push them or their families back into poverty. Second, other services, such as access to water, sanitation, and housing are also important and here a lot of progress has been made already. A third priority is to look at ways to boost the productivity and environmental sustainability of agriculture and associated agri-food industries. China still has a largely fragmented structure of agricultural production and the existing strategies to boost yields through the application of greater quantities of fertilizer and pesticides are running into diminishing returns. Additional gains would come from the consolidation of land, the introduction of more capital-intensive production technologies, and the shift towards greater quality control along the complete agri-food value chain.

The potential productivity gains from such a transition could go hand in hand with more environmentally sustainable practices. The growing demand for safe and high-quality food from China’s own consumers makes this commercially attractive. China’s rural revitalization policies are thus intrinsically linked with China’s environmental and climate objectives. This is the focus also of the World Bank’s support to rural revitalization. We see it as an opportunity to combine more equal access to quality services, agricultural productivity improvements and greater environmental sustainability in one set of policies. We have some ongoing operations already, which have contributed to important reforms, for instance the integration of various government poverty reduction support programs in Guangxi under one budget line at the local level, providing greater flexibility to target assistance where it is most needed, which was later rolled-out nation-wide. Likewise, we are working with Hunan to introduce performance-based transfers into aspects of their rural revitalization program, as a means to increase the efficiency and accountability of government spending in this area. We plan to build on these reforms in our future support, whilst at the same time focusing on greening China’s rural revitalization efforts.

One cautionary remark we would make is that there is growing evidence of excess investment in rural infrastructure and question marks over the sustainability of some of the industries attracted by generous subsidies. While the flow of resources has helped reduce rural-urban inequalities in the past decade, the return to investment in rural areas and in China’s western provinces has declined rapidly. China’s ample domestic savings and relatively strong fiscal position means it could afford these transfers in the past. Going forward, policy makers should consider carefully whether the money would not be better invested in improving social security, health care or education provision in rural areas.