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Poverty reduction in China: what’s next?

By Maria Ana Lugo, Martin Raiser and Ruslan Yemtsov

China has achieved an impressive economic catch-up since the 1980s. The number of people living in absolute poverty has fallen by almost 800 million, and the poverty rate (measured against an international poverty line of $1.90 per day) has dropped below 0.5 percent of the population.

But in order to further boost the population’s income, Beijing has to break new ground. After all, the key to success has so far been sustained economic growth and the integration of the Chinese economy into international value chains. China’s current situation, however, offers only meager prospects for growth and income gains for the poor.

On the one hand, China’s technological capabilities and the competitiveness of its leading companies are comparable to those of high-income countries, and its highest-performing schools and students are among the best in the world. But these capabilities are not broadly distributed. For example, the dispersion of productivity levels between Chinese companies is high. The average education level of the workforce is low compared to high-income countries, and access to proper education remains unequally distributed. China needs to pay more attention to these inequalities.

Market-oriented reforms could be an important catalyst for greater diffusion of technological skills and better access to high-quality services. For businesses, aligning conditions for access to finance and land could help promising small and medium-sized enterprises to grow and create the jobs of the future. Removing remaining hukou restrictions on labor mobility could facilitate access to better education and health services in urban areas for the current generation of school children, improving social mobility and economic opportunities. Over time, this would help reduce the risk of skilled labor shortages, including in the urban service sector, which is likely to drive future productivity growth.

Redistribution from the city to the countryside

China’s administrative capacity is an advantage in the transition to a high-income country, but the government’s role in aiding the poor and weak will have to change. China’s poverty line is below the level of most middle-income countries and is less than half of the $5.50 per day that is typical for such countries. Introducing a higher threshold would change the profile of the poor: At $5.50, about one-third of the roughly 180 million poor would live in urban areas, and many of them would be informal nonagricultural migrant workers. These groups are more likely to experience temporary poverty, associated with periods of unemployment and expenditures on health and education. Social policy would need to take these differences into account, just as targeted poverty reduction had been based on an evaluation of the needs of households in rural areas.

After eliminating absolute poverty, China has set 2035 as the target date for achieving common prosperity. This means providing all Chinese citizens with the opportunity to enjoy a reasonable living quality. Ensuring equal access to education, health care, and other services; using market signals and competition to promote innovation and technology diffusion; and repeatedly adjusting government policies to ensure that social transfers target key vulnerabilities and help China’s citizens manage the risks of rapid socioeconomic change – these are the lessons of the past 40 years. They will also continue to serve China on the path ahead.

Maria Ana Lugo is a Senior Economist at the Poverty and Equity Practice of the World Bank for China, Mongolia, and Korea, East Asia, and the Pacific Region. Martin Raiser is the Country Director for China and Mongolia, and Director for Korea. Ruslan Yemtsov is the Human Development Program Leader for China, Mongolia and Korea.

Martin Raiser will discuss the topic “After 40 years of poverty reduction in China: What are the challenges?” at the Global China Conversations of the Kiel Institute for the World Economy (IfW Kiel) on Thursday. China.Table is a media partner of the event series.

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