Curbing poverty and inequality
China’s record offers guidance for other developing economies, says World Bank official
Editor’s note: As China aims to eliminate extreme poverty and be a “moderately prosperous society” ( xiaokang shehui) in time for the 100th anniversary of the founding of the Communist Party of China next year, we talk to experts for their take on the country’s commitment.
China’s reform and opening-up and its targeted interventions in reducing poverty are among the lessons that can be learned and disseminated among developing countries, which would also benefit from Beijing’s new growth pattern that centers on an increased domestic market, according to Martin Raiser, the World Bank’s China chief.
“Many lessons can be learned from China’s sustained gains in poverty reduction over the past 40 years,” said Raiser, country director for China and Mongolia for the bank, a 189-member lender that gives priority to ending extreme poverty and promoting common prosperity.
Among the high-level lessons, Raiser highlighted the country’s start of its reform and opening-up four decades ago, which enabled it to reap “huge gains” in efficiency that drove an increase in incomes for all Chinese.
“The second lesson is that while reforms and allowing market forces to play a growing role in the economy were a big part of China’s success, more targeted interventions became necessary, focusing in particular on the concentration of poverty in rural areas,” Raiser said.
Raiser joined the World Bank in 2003 and was posted to Beijing in March last year. He was well aware of how China’s massive poverty-relief drive had proceeded before his posting.
One of the “big things” that happened in the early 2000s was that China started building up a database of up to 150,000 villages, identified as poverty-stricken places, and then policy was directed to help those particular areas, Raiser noted.
“Over time it became increasingly clear that poverty is no longer a placerelated affliction, but it has a lot to do with personal household characteristics, and so from monitoring places you have to move to monitoring households,” he told China Central Television on Oct 27.
“I think China clearly demonstrates that economic growth, and in particular the kind of economic growth that China was able to generate, is the key contributor to poverty-reduction in the first three decades.”
Then over the past decade and particularly after 2013, the targeted social policies covered “the last mile” of the poverty-alleviation course, he said.
Targeted poverty-alleviation, a concept first raised by Chinese President Xi Jinping in 2013 during a visit to a village in Hunan province, was adopted as a strategy by the government in 2014 to “ensure that assistance reaches poverty-stricken villages and households”.
The policy, which requires tailoring relief measures to different local conditions, was included in the firstever resolution addressing povertyeradication in rural areas, adopted by the United Nations General Assembly in 2018.
Between 2012 and 2019, China lifted at least 93 million rural residents out of poverty, or more than 10 million people annually, seven years in a row, according to official figures.
The proportion of poverty in rural regions had shrunk from 10.2 percent to 0.6 percent in the period.
But to better understand targeted interventions and assess the efficiency of the substantial rise in public spending in this area over the past decade, detailed microeconomic and fiscal data or case-study analysis is required, Raiser said.
“Clearly this will remain an issue of keen interest for development specialists, and we hope China will collaborate proactively with international researchers to ensure these lessons are learned and disseminated.”
As China and the World Bank Group, or WBG, celebrate the 40th anniversary of their partnership this year, Raiser noted that exchanging knowledge rather than financing has become increasingly important to the relationship.
“In addition to us engaging with China’s policymakers on critical policy choices, such as in the context of the upcoming 14th FYP (Five-Year Plan for 2021-25), this also includes the WBG learning from China’s own development experiences and partnering with China to share this with other developing countries.”
While in the past, many less-developed countries benefited from China’s rapid, investment-driven growth as commodity exporters, such a growth model is running out of steam in China, which will need to rely more on domestic consumption to sustain growth, Raiser said.
“Such a shift could also create important opportunities for poor countries who could export laborintensive goods and services to China, as China itself moves up the value chain.”
For that to happen, China should combine macroeconomic policies to rebalance the economy with policies to further open up its domestic markets to competition, he said.
“Whether it does matters for global poverty-reduction.”
Zeng Peiyan, former vice-premier and chairman of the China Center for International Economic Exchanges, said at the 6th Global Think Tank Summit in Beijing in September that China has worked out a new economic growth model of “dual circulation” for the next five years, focusing on its huge domestic consumer market and promoting high-level opening-up.
The new development pattern will by no means be closed domestic circulation. Instead, it is open dual circulation involving both domestic and foreign markets, President Xi said in a speech expounding the country’s new national development plan, Xinhua reported on Nov 3.
Xi also said that this year China’s gross domestic product is expected to exceed 100 trillion yuan ($15.3 trillion), people’s living standards will significantly improve and all rural impoverished populations will be lifted out of poverty by current standards.
In addition, the goal to complete the building of a moderately prosperous society in all respects can be achieved on time, Xi said.
Raiser said that once extreme poverty has been eradicated, countries need to address social vulnerabilities.
Rebalancing toward consumption is one way for the government to help with the vulnerable population, he said.
During the COVID-19 crisis, for instance, some migrant workers and others informally employed in China’s urban areas became vulnerable, as they had not been previously featured as target populations for the government’s poverty-eradication programs.
“Social policies thus needed to be adjusted to cover these groups,” he said.
Raiser, in an interview with China Daily on Oct 12, said the government can help “the living standards of those at the bottom of the distribution” through better targeted assistance, a stronger social insurance system and a stronger social transfer system.
“China has the fiscal space to do that,” he said, adding that it will require a little more government spending, but will have the benefit of supporting the rebalancing toward consumption.
One of the reasons people in China save a lot is because they feel if something happens to them they have to rely on themselves, Raiser said.
“If they knew that the government is going to provide a bit more assis
tance, they would probably feel that they can afford to spend a bit more. And that would be good for the Chinese economy, and for the rebalancing.”
Another way to help the disadvantaged is to make sure that economic growth is inclusive, he said. “That means that jobs are created, and that the wages of people at the bottom of the distribution continue to increase.”
Raiser has closely followed development for China’s 14th Five-Year Plan, which is expected to be endorsed by the country’s top legislature next year.
In a blog posted on the Brookings Institution website on Nov 10, Raiser and Marcin Piatkowski, a senior economist at the World Bank, said the plan is likely to emphasize investments in digitalization, which will have consequences for social and economic outcomes.
“There is emerging evidence that the development of e-commerce is associated with higher employment, faster growth in incomes, increased entrepreneurship, reduced migration outflows, higher gender equity and reduced poverty,” they wrote in “China 4.0: Sharing the dividends of digitalization”.
China has ramped up efforts to expand internet-based services to the vast rural market by improving infrastructure, especially in povertystricken areas.
Fiber- optic availability in the country’s poor villages has reached a record 98 percent, and a rural e-commerce promotion project has covered all the 832 poor counties, Yang Xiaowei, deputy head of the Cyberspace Administration of China, said at a news conference on Nov 6.
As the world wrestles with a pandemic that has killed more than 1.53 million people, Raiser said how China recovers from the pandemic “matters significantly” for a lot of the country’s trading partners.
China continues to be the only major economy to grow this year, when global contraction of 4.4 percent is expected, according to the World Economic Outlook that the International Monetary Fund issued in early October.
China’s GDP grew 4.9 percent year-on-year in the third quarter, compared with growth of 3.2 percent between April and June, suggesting “a rapid return to the pre-COVID trend”, according to US economist Stephen Roach, former chairman of Morgan Stanley Asia.
“In this sense, the fact that China seems on track to record positive growth this year is obviously welcome,” Raiser said. However, as the rest of the world recovers, one would expect China’s trade surplus to shrink, he said.
World Bank President David Malpass warned recently that the coronavirus may have driven as many as 100 million people back into extreme poverty and that “that number could go higher” if the pandemic worsens or drags on.
The pandemic will reverse the progress made since the 1990s in reducing global poverty and will increase inequality, the IMF said in its outlook.
People who rely on daily wage labor and are outside the formal safety net faced sudden income losses when mobility restrictions were imposed. Among them, migrant workers who live far from home had even less recourse to traditional support networks, the outlook said.
The World Bank’s chief economist Carmen Reinhart said the global economy may take up to five years to recover from the crisis caused by the pandemic.
In April, the World Bank and the G20 finance ministers endorsed the Debt Service Suspension Initiative, or DSSI, in response to a call by the World Bank and the IMF to grant debt-service suspension to the poorest countries to help them manage the severe impact of the COVID-19 pandemic.
“China is a member of the G20 and as such participates in the DSSI initiative,” Raiser said. “This is very important, because China is an important creditor to many of the poorest countries.”
The United States, China and other G20 countries on Nov 13 agreed for the first time on a common approach for restructuring government debt as the coronavirus crisis leaves some poorer countries at risk of default, Reuters reported.
In a video speech delivered at a UN General Assembly session in late September, President Xi said China will honor its commitment to provide $2 billion in international assistance over two years, further international collaboration in fields including agriculture, poverty-reduction and climate change, and support other countries in restoring economic and social development.