Is China Succeeding at Eradicating Poverty?

Is China Succeeding at Eradicating Poverty?
Is China Succeeding at Eradicating Poverty?
Is China Succeeding at Eradicating Poverty? Top

    China’s transformation from an agrarian society into the world’s second-largest economy has lifted hundreds of millions of people out of extreme poverty. As part of broader plans to transform China into a “moderately prosperous” society, the Chinese Communist Party (CCP) has set an unprecedented goal to eradicate poverty in China by the end of 2020. While China is set to achieve this goal based on a narrow definition of poverty, hundreds of millions of people in China continue to struggle with low incomes and poor standards of living.

    Measuring China’s Progress on Poverty

    Alleviating poverty has long been an enduring challenge for the global community. People living in extreme poverty suffer from severe deprivation of basic human needs, including food, safe drinking water, sanitation, health, shelter, and education. While poverty is a multidimensional issue, it is generally measured by income level. The current international extreme poverty line, established by the World Bank, is set at $1.90 per day (2011 PPP).1

    Using the $1.90 per day extreme poverty line, the global poverty rate has declined significantly since 1990, when it stood at 36.2 percent of the global population (1.9 billion people), to about 8.7 percent (roughly 668.7 million people) in 2018. China was responsible for just over 60 percent of this decrease. Decades of rapid economic growth in China helped to lift 748.5 million people out of extreme poverty, dropping the country’s poverty rate from 66.3 percent to just 0.3 percent.

    Among the world’s 15 most populous developing countries, China has seen the greatest drop in poverty rates. However, China’s massive contribution to global poverty alleviation is largely a function of its size. Vietnam succeeded in reducing its extreme poverty rate from 61.3 percent to 1.9 percent from 1990 to 2018, putting it roughly on par with China. Yet, because Vietnam’s population is a small fraction of China’s, the Southeast Asian country’s successes have only accounted for about 3.2 percent of global poverty declines since 1990. 

    Evaluating extreme poverty only tells part of the story. In addition to the international extreme poverty line of $1.90 per day, the World Bank recommends using $3.20 and $5.50 per day as benchmarks to assess poverty in lower-middle and upper-middle income countries, respectively. Comparing progress across these three international poverty lines provides a more detailed picture of poverty alleviation. The animation below shows how poverty rates have changed in China from 1990 to 2018.

    Poverty Alleviation in China $1.90 per day $1.90 per day $3.20 per day $3.20 per day $5.50 per day $5.50 per day 1990 Population in living at or below 2018 Population in living at or below

    When the $5.50 per day poverty line is applied to China, an upper-middle income country, 17 percent of the country’s population (237.2 million people) still lived in poverty in 2018. This is noticeably higher than some other major middle-income countries. Turkey’s poverty rate of 8.5 percent, for example, was half that of China’s. Iran (15 percent) also fared slightly better than China. Still, China was ahead of both Brazil (19.8 percent) and Mexico (22.7 percent).

    Charting Progress on Poverty Alleviation

    Although China’s poverty alleviation progress has been impressive, it has not been without problems. Poverty has long been more severe in rural regions. In 2018, the extreme poverty rate in rural China was roughly five times higher than in urban areas.

    China’s own national poverty line is reflective of this rural-urban divide. Official figures only provide data on poverty in rural areas, rather than the entire national population. China’s current poverty line was established in 2011 and was set at $339.7 (RMB 2,300) per year at constant 2010 prices, which equates to $0.93 (RMB 6.3) per day. However, when adjusted to account for rural-urban price differences, China’s rural poverty line equals about $2.30 a day at 2011 PPP.

    China’s rural poverty line is notably higher than the international extreme poverty line of $1.90, and in recent years has tended to show significantly higher rates of rural poverty. In 2015, for example, China’s poverty line indicated 5.7 percent of the rural population was in poverty, while the international line indicated a rural poverty rate of just 1.3 percent.

    China’s Push to End Poverty

    Poverty alleviation has long been a top priority and central source of legitimacy for the CCP. Under Xi Jinping, the Party has pursued an unprecedented goal of completely ending extreme poverty by the end of 2020. China is set to reach its goals, but questions remain about the sustainability of government measures.

    China’s success at alleviating poverty is largely the result of decades of rapid economic growth. Over the last two decades alone, China’s Gross National Income (GNI) per capita grew more than ten-fold from just $940 in 2000 to $10,410 in 2019.2 This is twice the rate of increase achieved by Russia, the second-fastest growing BRICS economy.

    However, economic growth has been highly uneven, with higher-paying manufacturing jobs clustering in urban areas. The Chinese government began taking steps to address this divide by focusing on rural poverty alleviation. In 1986, the government set up a State Council office to identify impoverished counties, established a national poverty line, and created special funds for poverty reduction.

    In 1994, the government introduced the Seven-Year Priority Poverty Alleviation Program, which set a goal of lifting 80 million people out of poverty within seven years. Central authorities also created cooperation mechanisms to allow more urbanized coastal areas to support poorer western regions. Subsequent “Outlines for Poverty Alleviation and Development of China’s Rural Areas” (in 2001 and 2011) eliminated primary school fees for rural students, among other measures.

    China also broadened coverage of the dibao program,3 a means-tested, unconditional cash transfer program that serves as the primary safety net for China’s poorest individuals. First piloted in Shanghai in 1993, dibao was expanded to cover all urban areas in 1999 and all rural areas in 2007.

    Middle Class

    Decades of rapid economic growth in China have allowed millions to enter the middle class. As of 2018, China’s middle class had grown to include more than 700 million people, constituting just over half of the population. Learn more.

    Since rising to power in 2012, President Xi Jinping has made eradicating poverty a top policy goal. Under Xi, China has pursued a strategy of “targeted poverty relief” – a concept first put forward by Xi in 2013 during a trip to Hunan Province. In late 2015, the Chinese government officially committed to eradicating poverty by 2020 – in time to mark the centennial of the CCP’s establishment in 2021. The government defined poverty as income levels at or below the rural poverty line of $339.7 (RMB 2,300) or less per year in constant 2010 values.4

    Chinese leaders also pledged to eliminate the “two worries” (inadequate food and inadequate clothing) and provide “three guarantees” (access to healthcare, education, and housing). In all, the government’s commitments amount to lifting more than 70 million people out of poverty within just five years. These goals are unprecedented in their scope, as previous Chinese administrations generally committed only to alleviating poverty, not to completely eradicating it.

    To meet these goals, the government scaled up efforts to track poverty. By 2014, authorities had identified 89.6 million poor people, 29.5 million poor families, and 128,000 impoverished villages. The annual government budget devoted to poverty alleviation also more than doubled from $7.5 billion (RMB 46.8 billion) in 2015 to $18.3 billion (RMB 126.1 billion) in 2019.

    Based on statements by Xi and other top officials, China is poised to achieve its goals of ending poverty by the end of 2020 and meet United Nations Sustainable Development Goals on poverty a decade ahead of schedule. In October 2020, the report passed at the 5th Plenum of the 19th CCP Central Committee stated that “the results of poverty alleviation [in China] have attracted worldwide attention.” The report also noted that, during the period of China’s 13th Five Year Plan (2016-2020), nearly 55.8 million rural poor had been brought out of poverty.

    Yet questions have been raised about various government measures. One recurring criticism is that there are major gaps in dibao coverage. Dibao is financed by the central government, but local officials determine which households can receive payments. This has led to cases of corruption as well as widespread shortages in coverage. As of mid-2020, the program covered only 3.1 percent of China’s total population, and monthly dibao payments averaged only $92.6 (RMB 651.8) for urban recipients and just $67.2 (RMB 473) for rural recipients.

    There is also concern that cash transfer programs like dibao disincentivize employment, which threatens the long-term sustainability of poverty alleviation. Some local governments have experimented with measures to transition welfare recipients to employment, but there is limited evidence that they are effective. Without more sustainable solutions, China risks allowing its most vulnerable citizens to slip back into extreme poverty.

    Vulnerability Below the Surface

    Despite years of prioritizing rural poverty alleviation, millions of rural residents continue to struggle with lower standards of living. Even in cities, migrant workers face unsafe working conditions and are excluded from accessing some critical social safety net protections.

    One of the most pressing socio-economic challenges facing China is the development gap between rural regions in the west and more urban areas in the east. On average, residents of eastern provinces and municipalities have much higher disposable incomes than those of western regions, allowing them to access a much wider range of consumer goods. In the coastal megacity Shanghai, for example, annual per capita disposable income stood at about $10,052 (RMB 69,442) in 2019. Roughly 2,000 kilometers west of Shanghai, residents of Gansu province lived on per capita disposable incomes of just $2,771 (RMB 19,139).

    The rural-urban development gap has major impacts on quality of life, affecting everything from dietary habits to disease mortality. In 2018, urban residents consumed 13.5 percent more meat than their rural counterparts. Conversely, rural residents ate 35 percent more grains, which are cheaper than meat. Research has also shown that rural residents face higher mortality rates from diseases like cancer. One study found that the incidence of cancer (per 100,000 persons) is higher in urban areas, but cancer mortality rates (per 100,000 persons) were higher in rural areas. In 2015, cancer mortality was about 36 percent higher among rural residents.  

    There are major inequities within China’s cities as well. In 2019, there were 290.8 million rural migrant workers in China, accounting for about 37.5 percent of the country’s total workforce. Roughly 46 percent of them were employed in manufacturing and construction jobs, which are labor-intensive and carry higher risks of injury.

    Many migrant workers are considered to be in “vulnerable employment,” which is characterized by “inadequate earnings, low productivity and difficult conditions of work.” About 43.8 percent of China’s working population was considered to be in vulnerable employment in 2018. While this is much lower than India (76.7 percent), it is higher than the other BRICS economies Brazil (27.6 percent), South Africa (9.7 percent), and Russia (5.3 percent).

    Many migrant workers also lack access to social welfare protections as a result of the hukou system, or household registration system. Designed to control the internal migration of Chinese citizens, the hukou system can limit rural migrant workers without urban hukous from accessing public services such as dibao. In 2017, for example, just 22 percent of migrant workers had a basic pension or medical insurance, and only 17 percent were covered by unemployment insurance. The children of migrant workers face challenges as well, as they are often forced to attend separate schools that provide a lower-quality education.

    Recent crises like the Covid-19 pandemic have hit these vulnerable populations hard. Researchers at Stanford University and China’s Renmin University found that China’s economy likely lost $100 billion in rural migrant worker wages during just one month of Covid-19 lockdowns. With little or no savings (due to low wages) and limited safety net protections, these wage losses were particularly harmful for migrant workers.

    Adding to this, their hardships were systematically underestimated. During the peak of China’s Covid-19 outbreak in February 2020, the country’s official unemployment rate reached a record high of 6.2 percent (roughly 29 million people). However, this figure excludes rural unemployment and undercounts jobless migrant workers, meaning China’s actual unemployment rate likely reached 10 percent (about 80 million people).

    “We will adopt a policy to see rural migrant workers have equal access to employment services in the cities where they work.”

    2020 Government Work Report

    The Chinese government has faced growing pressures to address these gaps and inequalities. In May 2020, Chinese Premier Li Keqiang delivered his annual Government Work Report, in which he stated the government “will adopt a policy to see rural migrant workers have equal access to employment services in the cities where they work.” He also announced that low-income earners would be allowed to postpone payments for social insurance premiums.

    While these steps may help to dampen the economic blow to China’s vulnerable populations in the short-run, significant obstacles remain. Rapid and sustained economic growth has long been the primary force fueling poverty alleviation in China. As China’s economic growth slows, the pace of poverty alleviation progress is likely to slow along with it. Transforming China into a “fully developed, rich, and powerful” society by 2049 – the centennial of the country’s founding – will thus remain a major challenge in the years ahead. ChinaPower

    1. The World Bank’s international poverty lines are set at 2011 PPP (purchasing power parity) to account for variations in prices over time and across geographic areas.
    2. Based on World Bank Atlas Method
    3. Dibao translates to “Minimum Livelihood Guarantee.”
    4. This equates to $590 (RMB 4,000) in 2020 prices.