China’s Anti-Poverty Strategy and Post-2020 Relative Poverty Line
* Sun Jiuwen ( ) and Xia Tian ( )孙久文夏添School of Applied Economics, Renmin University of China, Beijing, China
SunJiuwen(孙久文)andXiaTian(夏添)........................................................................................................
Abstract: China is about to eliminate absolute poverty in 2020 in favor of relative poverty. The Gini coefficient reflects a distorted picture of relative poverty in China, which is prominent and overlaps with absolute poverty. This paper reviews China’s moving poverty line and pro-poor policies in various stages. It then estimates the scale of rural relative poverty in the context of urban and rural divide, and lastly, it proposes that, beyond 2020, China should follow a two-region and two-stage approach in setting the relative poverty line. Coastal regions should adopt a relative poverty line based on household disposable income, interior regions should convert the absolute poverty line into relative poverty line. After 2035, China is expected to enter late-stage urbanization, and the relative poverty standard will be based on national disposable income. Future poverty governance should continue to focus on capacity training, regional transition, and multi-dimensional poverty identification.
Keywords: relative poverty line, transition of poverty type, potential poor populations, human capital development
JEL Classification Codes: I32, I38, J24
DOI: 1 0.19602/j .chinaeconomist.2020.05.05
Poverty plagues many developing countries and China is no exception. In September 2015, the United Nations Sustainable Development Summit adopted the Transforming of the World: 2030 Agenda for Sustainable Development. After eradicating absolute poverty in 2020, China’s anti-poverty agenda will shift from specific groups and regions to regular and universal poverty reduction, from absolute poverty to relative poverty, from rural poverty to an integrated approach on urban and rural poverty, and from domestic poverty to international anti-poverty cooperation.
There are two types of poverty classification: absolute or relative poverty and single-dimensional or multi-dimensional poverty. Absolute poverty, measured by the monetization of food consumption, corresponds to the concept of “absolute deprivation.” Relative poverty, which results from an uneven income distribution, corresponds to the concept of “relative deprivation.” These measurement standards are not yet unified. Academic research on relative poverty, particularly the definition of the poverty line and poverty identification, is insufficient.
By elaborating the relationship between absolute, multi-dimensional and relative poverty, this paper seeks to investigate the management of relative poverty, and reveal the future outlook for China’s
implementation of anti-poverty strategies beyond 2020 using a case study on the incidence of relative poverty in the United States and countermeasures employed in the country. This paper’s findings will support anti-poverty policymaking in China.
1. China’s Poverty Reduction Strategies and Shifting Poverty Challenges 1.1 China’s Poverty Line and Poverty Reduction Strategies
1.1.1 China’s moving poverty line
The old China (before 1949) was a society of widespread poverty. After the founding of the People’s Republic of China in 1949, household incomes in China were less than developed countries. When the reform and opening up program was unveiled in 1978, China’s rural poverty incidence was 30.7% and China’s poverty line was 100 yuan per person per year. By this standard (converted to current year price), China’s rural poverty incidence had dropped to 3.5% in 2000. See Figure 1.
China has drafted a total of three poverty standards (1978, 2003, 2010) with minor adjustments in CPI in the year after each standard was published. As shown in Figure 1, the scale and incidence of poverty in China decreased the most rapidly based on the 2010 standard. Then poverty in China was no longer widespread, and became confined to specific and sporadic regions. The three poverty standards were drafted under different poverty reduction prioritization approaches in each historical stages with different characteristics of poverty types.
From 1978 to 2000, the average household monetary wage in China increased by 14.23 times the monetary wage in 1978, and its consumer price index (CPI) rose by 3.91 times the CPI in 1978. Given
the rising household incomes since reform and opening-up in 1978, the absolute poverty line of 100 yuan per person/year set in that year became obsolete. This absolute poverty line was based on subsistence nutrition standards and the consumption structure of people in the lowest 20% income bracket. From 1978 to 2000, however, the Engel’s coefficient for China’s urban households dropped by 18.1 percentage points ( down from 57.5% to 39.4%), and that for rural residents fell by 18.6 percentage points (down from 67.7% to 49.1%). Services overtook staple foods as the greatest proportion of household consumption.
1.1.2 China’s evolving anti-poverty policies
After the implementation of reform and opening-up policy in 1978, China’s anti-poverty policies can be divided into four stages - regional development (1978-1985), poverty relief campaign (19862000), village-wide implementation (2001-2012), and targeted poverty reduction (2013-2020). China’s poverty reduction endeavors began in the countryside. In 1978, China adopted a poverty reduction strategy to create jobs for the rural poor by implementing infrastructure projects. In the 1980s, China’s countryside saw a dramatic reduction in poverty largely thanks to economic development. In 1986, the Chinese government implemented special rural anti-poverty programs in 331 state-level poor counties; in 1994, the government enacted the Seven-Year Priority Poverty Reduction Program to lift 80 million people (in 592 state-level poor counties) out of poverty. This marked a critical stage in China’s poverty reduction efforts. With the designation of poor counties and villages, county-based development-oriented poverty reduction became the linchpin of China’s anti-poverty strategy. The Outline for DevelopmentOriented Poverty Reduction for China’s Rural Areas (2001-2010) enacted in 2000 identifies the goal for China’s development-oriented poverty reduction in the 21st century as “two no worries and three guarantees” (no worries about food and clothing and guaranteed access to compulsory education, basic healthcare and housing security). The Outline for Development-Oriented Poverty Reduction for China’s Rural Areas (2010-2020), enacted in 2010, identifies contiguous poor regions as the principal battlefield for development- oriented poverty reduction in the new decade. The combination of national antipoverty policies and coordinated regional development further broadened the scope of China’s integrated development-oriented poverty reduction strategies (Chen, et al., 2019).
During his inspection tour to western Hunan Province in November 2013, General Secretary Xi Jinping stated significantly that poverty reduction work should “be based in reality, be adapted to local conditions, follow expert guidance, and be targeted at poor groups in real need.” Xi’s statement marks the official announcement of the “targeted poverty reduction” principle. At the High-Level Forum on Poverty Reduction and Development held on October 16, 2015, Xi Jinping stressed that China’s battle against poverty should follow a targeted approach to lift 70.17 million people and 592 poor counties out of absolute poverty and eradicate absolute poverty in contiguous poor regions by 2020.
1.2 Changing Types of Poverty
When the People’s Republic of China was founded in 1949, most people in China lived in poverty. Since then, poverty in China has receded to the countryside and then contiguous poor regions. As widespread poverty decreased, the focus of China’s anti-poverty agenda shifted to special groups, potential poverty and recurrent poverty . After 2020, multi-dimensional poverty (i.e. disadvantages in income, health, brain power and other personal abilities) and relative poverty will emerge as the dominant forms of poverty in China. From 1986 to 2000, China’s anti-poverty policies were focused on subsistence needs such as food, clothing and housing, guided by “income poverty” as the sole criterion. This poverty standard was replaced by the “two no worries and three guarantees” principle for the 20102020 period, or, in other words, multi-dimensional poverty criteria replaced income poverty as the yardstick for measuring poverty in China.
During the previous four decades, the Chinese government has focused on reducing rural absolute
poverty, using different approaches to achieve this goal. However, despite the large reductions in rural absolute poverty as an indicator of decreases in poverty (Chen et al., 2013), relative poverty – reflecting differences in urban and rural economies, uneven labor flow, and industrial layout – still exists and, as such, is a more realistic manifestation of poverty. Thus, as of 1978, relative policy now features prominently in China’s policy discourse and, after 2020, a new priority will be to lift people from relative poverty. After reviewing poverty concepts, this paper estimates China’s regional Gini coefficient to reveal the magnitude of relative poverty in the country as a basis for policy design in the subsequent chapter.
2. Poverty Definitions and Gini Coefficient Estimation 2.1 Shifting Poverty Definitions and Poverty Reduction Priorities
After two adjustments, China’s current absolute poverty line is reasonably operational and comparable between 1978, 2008, 2010, but this measure does not capture the depth of and psychological traps associated with poverty. During the 11th Five- Year Plan ( 2006- 2010), research into multidimensional poverty based on “capacity deprivation” was on the rise. Yet controversies regarding the weight and aggregation of multi-dimensional poverty indicators presented and remain barriers to the use of this method. As an alternative, the Watts method and the A-F Dual Cut-Off method provide valuable guidance for measuring poverty in terms of the focus, monotonicity monotony and transfer axioms (Li, Shen, 2007).
For the three target poor groups (see Table 1), absolute poverty uses only the standard of household disposable income to determine rural poor populations; the two adjustments were made to reflect the depth of poverty. The vast majority of people below the absolute poverty line in China have received various forms of support. In 2010, the size of poor populations and poverty incidence under the poverty standard converged at 30 million people and 5%, respectively. However, a closer look at “capacity poverty” suggests that the propensity to spend less and save more for future needs has crimped consumption among farmers, especially poor farmers. In the countryside, which frequently has poor public services, disease, disaster, disability and schooling often condemn households to poverty. Between 2000 and 2009, poverty recurred among as much as 10% to 20% of households who had been lifted
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out of poverty. This, coupled with inter-generational transmission of poverty, weakens the long-term effectiveness of poverty reduction through transfer payment. In 2015, the National Development and Reform Commission (NDRC) unveiled a “five-pillar” policy to reduce poverty through development, resettlement, ecological compensation, education, and social protection, i.e. after the poor develop skills to earn a living free from poverty-inducing factors, relative poverty measured by gaps in relative income reflects a real picture of the change in poverty - a reduction in the deeply poor at the tail of the income distribution curve.
The measurement of multi- dimensional poverty remedies the deficits in absolute poverty’s
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assessment of capacity. Relative poverty targets the potentially poor around the poverty line, who will be the primary beneficiaries of future poverty reduction programs in China. Wang and Zeng (2018) suggest describing post-2020 poverty relief recipients as “low income” and “underprivileged” groups.
Some EU member states, the United States and Australia have attempted to identify the relatively poor and to offer them policy aid.
2.2 Gini Coefficient Estimation
In China, absolute poverty coexists with relative poverty. The income peak of poor populations has been shifted to above the poverty line. The tail of income distribution curve for poor populations has abated. The income distribution curve of poor populations is longer to the left of the peak, and is referred to as a “tail,” i.e. most poor populations still live below the poverty line. As income sources diversify, property income has become chiefly responsible for yawning income gaps. A relative poverty line based on income distribution marks the beginning of the transition in poverty reduction practices.
As a yardstick for income distribution, China’s Gini coefficient estimates as obtained from different data sources are inconsistent. The comparable Gini coefficient of 2010 was variously estimated to be 0.61, 0.545, 0.53, 0.48 and 0.44 by the Survey and Research Center for China Household Finance at the Southwest University of Finance and Economics, the China Survey and Data Center at the Renmin University of China, the Institute of Social Science Survey at Peking University, the National Bureau of Statistics (NBS), and the China Institute for Income Distribution at Beijing Normal University, respectively. The 0.44 was based on data from the China Health and Nutrition Survey (CHNS), the Economic Data Research Center of Hunan University estimated China’s overall Gini coefficient in 2009 to be in the range of [0.48, 0.51]. (See: Li and Xue (2013)) The Gini coefficient is believed to experience an inverted U-shaped curve, increasing at first and then declining after reaching a peak. The author of this paper believes that economic development may influence the Gini coefficient in three ways: (1) by widening regional gaps and increasing differences in the interregional industrial structure; (ii) by promoting urbanization that benefits urban and rural residents unequally; (iii) by increasing the flow of people, including short-term and long-term migrant populations, whose Gini coefficient gaps keep expanding.
According to the NBS, China’s Gini coefficient exceeded the international alert line of 0.4 in 2017. However, academics have been skeptical about the soundness of this criterion and the authenticity of the relevant data. Is the international alert line for Gini coefficient applicable to China? Does the absence of income data for high-income people distort the Gini coefficient? Answering these two questions is of great policy significance for designing income redistribution policies and offering aid to people in relative poverty.
Given the errors and omissions in its estimation basis and process, China’s Gini coefficient is far from a perfect yardstick. With China’s persistent urban-rural divide, the per capita disposable income of rural residents is below the national average, and agricultural provinces in the central and western parts of China will become mid- and low-income regions.
Judging by the income distribution of various provinces (see Figure 2), the following facts can be determined: (i) A total of 10 provincial-level regions, including Shanxi, Guangxi, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang are below the median disposable income for rural residents nationwide, i.e. mean income of the middle 20% of five equal divisions of national rural per capita disposable income. Among these regions, the per capita disposable income of rural residents in Gansu Province is below the national lower middle income line for rural residents. ( ii) Henan, Shandong, Sichuan, Hebei, Hunan and Guangdong provinces have large rural populations with low per capita disposable incomes, suggesting that absolute poverty in China’s countryside will morph into rural relative poverty in those provinces. In other words, Gansu, Guizhou and Yunnan are broadly and deeply poor, while Shaanxi, Shanxi and Xinjiang are broadly poor, and Qinghai and Ningxia are deeply poor. Guangxi, Tibet, Hebei and Sichuan also face potential risks of broadly poor.
Likely after 2020, the relative poverty line based on income distribution will become the norm for poverty identification. Yet, during the transition period, the poverty line should comprise a floating income range and diversified indicators given the variance in the types and depth of poverty across regions. Calculated with the non-urban populations data in the Statistical Communique on 2017 National