Chinese Lessons in Poverty Eradication

Model is not a template but it can inspire large-scale policies to be referenced and adapted to other countries' contexts

Ian Goldin

Ian Goldin is professor of Globalization and Development at the University of Oxford and author of Development: A Very Short Introduction and Age of Discovery: Navigating the Storms of Our Second Renaissance. He was vice-president of the World Bank (2003—2006), and prior to that the Bank's director of Development Policy (2001—2003).

Global poverty has been falling for decades: in the 1960s, around 50 percent of the world population was living in extreme poverty (defined as living on less than $1.90 per day); today, that number is around 10 percent (Chart 1, source: Our World in Data). China has been at the forefront of this achievement and is responsible for over 70 percent of the fall in poverty levels worldwide over the past 40 years.

Chinese poverty reduction is a success story of historical significance. Over the past 40 years, the Chinese government has embarked on a well-organized campaign to reduce poverty and turn the nation into a middle-income country within a generation.

From the announcement of targeted economic reforms in 1978, the number of extremely poor Chinese went from 60 percent in the 1990s of the population to less than 2 percent in 2014, according to the World Bank, with over 700 million people being lifted out of extreme poverty in 40 years (Charts 2 and 3, Source: World Bank). This has been achieved through a concerted modernization of the economy.

Agriculture has reduced in significance as a share of employment from over 75 percent 40 years ago to under 25 percent today, with manufacturing and then services overtaking agriculture to account for the largest share of employment. This has been associated with a process of urbanization and a commitment to universal education and health services as well as access to clean water and electricity. Whereas barely 20 percent of the population lived in urban areas 40 years ago, now over 60 percent of the population of 1.4 billon citizens are urban (Chart 4,

Source: China's National Bureau of Statistics). Urban wealth has also increased more than five times since 2000 (Chart 5, Source: Chinese National Bureau of Statistics). Along with urbanization has come dramatic increases by 12 years in life expectancy to 77 years. Average incomes increased by over 40 times and when adjusted by purchasing power by over 60 times.

The ambition of the Chinese government, as announced by President Xi Jinping at the Global Poverty Reduction Forum in 2015, is to eradicate extreme poverty in China by 2020. Considering China's extraordinary economic success, this objective appears to be in reach.

How has China achieved such a remarkable feat and what lessons can developing countries learn from China's poverty reduction?

The key to the Chinese success is that, together with strong economic growth, development policies specifically aimed at poverty reduction have been firmly in place since the market reforms were initiated 40 years ago. The OECD identifies development-oriented leadership, and the building of a national consensus, as the main factors that have allowed for the near-elimination of poverty. This has entailed a rigorous implementation of development and social policies, a uniform system for measuring policy performance, and the concerted effort of the private and public sector, motivated by a unifying national commitment to shared goals. Defining precise developmental goals, and generating a collective impetus toward their achievement for the entire population, including both the public and the private sectors, has played a crucial role in the Chinese poverty reduction strategy, setting an example for developing countries in their struggle against poverty.

The achievement of such ambitious goals would not have been possible without a coherent and effective policy implementation mechanism. The Chinese case is unique in the way development policies were trialed and, if successful, scaled up and rolled out nationwide; or withdrawn, if ineffective, in a dynamic learning process that proved extremely effective. Policy trial and experimentation has been common since the beginning of the Chinese poverty reduction effort: the effectiveness of policies, rolled out in local areas first, has been assessed empirically, and implemented on a national scale thanks to careful monitoring and the rotation of civil servants around the vast country.

The introduction of land ownership which spurred agricultural productivity in the late 1970s is, for example, the result of a successful village-wide experiment of “household land responsibility”. Market policies, gradually liberalizing capital flows, trade reforms, and financial exchanges, have been tested first in Special Economic Zones since their inception, and the Free Trade Zones and Economic and Technological Development Zones represent the success of Chinese sectoral and experimental policymaking.

The development of cities like Changsha in Central China are a case in point for this unique growth strategy. Coming from a very low base and a relatively isolated and poor region, the city has experienced prodigious growth in recent decades: its GDP per capita increased fourfold from 2000 to 2012, and its industrial profile changed from heavy industry and manufacturing to high-value-added, capital intensive industries such as automotive and media/communication. This was achieved through a mixture of national intervention — particularly the Rise of Central China plan — and effective decentralization. Investment in R&D and labor training initiatives, together with policies to promote internal competition between different cities and provinces have ensured the development of cutting edge industries and rapid economic growth, accompanied by improvements in health, education and infrastructure in a growing number of rapidly advancing cities and regions. At the local level, a system of“leading groups” helped coordinate the activities of firms' managers, the local administration, and national agencies to achieve growth effectively. Programs have been implemented for the development of local human capital, combined with the attraction of talent and the drawing on lessons from the rest of the country as well as from international organizations, other countries and international experts.

In this, as in other areas of development, carefully planned experiments with close monitoring of the results, adjustments to improve outcomes through trial and error and then scaling of the lessons to a widening number of areas and people has been at the heart of the Chinese poverty reduction strategy. The combination of the depth and breadth of commitment to the objectives and the process of combining an understanding of the best global and national practices with learning by doing and adapting to local circumstances is the most important lesson from China.

Funding for policy implementation has been sought both from public investment in infrastructure and technological innovation, but also through the responsible use of international resources and investments, which facilitated the learning, transformation and adaptation of best practices internationally. This remarkable openness to examining global experiences and being open to adapting and implementing changes in consultation with local communities is another vital lesson of the Chinese experience.

An early result from the initial institutional effort toward poverty reduction has been mass job creation, as private and public investments, and the construction of a network of transport and communication infrastructure created new jobs, and shifted workers toward the productive sectors of manufacturing and services. Today, over 80 percent of employment and around 60 percent of investment comes from the private sector (Chart 6, Source: China's National Bureau of Statistics).

This would not have been possible without the creation of an impressive network of educational, social, and research institutions, and widespread transport and communication links. With an increasingly far-reaching and solid structure in place, the Chinese government has created the springboard for poor citizens to lift themselves out of poverty, inspiring a sense of responsibility and allowing access to educational and technological resources. Self-reliance has been a key theme in this process, both at the individual, community and the city and institutional level. Competition for places in the top educational and civil service institutions is intense and based on merit, leading to high levels of preparation and competence at the national level, an unprecedented feat for a developing country.

The Chinese growth phenomenon, impressive as it is, does have its risks: particularly, the environmental sustainability of such rapid growth. This has resulted in a need to reduce the intensity of water and energy use and overcome pollution and the reliance on fossil fuels. These challenges are recognized by the govern ment, and are part of the 2020 ambition to eliminate extreme poverty. Eager to maintain social stability, and reap the benefits that come with sustainable growth, the Chinese administration has embraced the pursuit of a wide range of environmental policies. President Xi has declared his intention to transform China into an “ecological civilization”. Chinese leadership in climate change has seen a remarkable acceleration in renewable energy use, with China in a short time becoming the biggest manufacturer and user of solar and wind energy. As a result of these and other efforts, China has managed to achieve a reduction of 46 percent in carbon intensity of GDP over 2005—2017, ahead of its ambition to achieve a 45 percent reduction by 2020.

Reforestation has also been a priority, and since 1978, over 66 billion trees have been planted by Chinese citizens, including in the arid northwest where planting is well-advanced to create a “green great wall” to stop advancing desertification. Another notable example of a large-scale mass reforestation effort has recently been initiated which aims at planting over 400,000 hectares of trees in Hebei Province — one of the most polluted in the country. Environmental concerns are a primary motivation behind this effort; however, concerns about public health and economic considerations are also important. Respiratory and cardiovascular diseases are recognized as a major source of ill health in China and Hubei Province's residents are among those that have been seriously affected by pollution.

Growing environmental concerns are one side effect of China's rapid economic growth. Another has been rising inequality. The inevitable consequence of rapid income growth from a very poor society that was one of the most egalitarian in the world is that some people have escaped poverty and got richer more rapidly than others. The country's Gini coefficient recently has

hovered just above 0.4 (Chart 7, Source: OECD), which is high by world standards. The higher the Gini coefficient, the more unequal the society, and although on this metric the US, Brazil and Mexico are more unequal than China, much of Asia and Europe now has lower inequality than China.

In part, growing inequality is the result of income gains for the poor having been achieved through job creation in the industrial sector, which has spurred internal migration toward urban areas, as well as through the implementation of welfare policies and improvement of public services. The urban share of wealth was 80 percent in 2015, up from 30 percent in 1975. The increase in inequality that the country has been experiencing has a strong geographic dimension, as it reflects the divide between urban and rural areas, with urban areas enjoying more rapid increases in income than rural areas.

There is, however, evidence that this trend might be reversing in recent years, thanks to targeted interventions in isolated ru ral areas, the introduction of minimum wage regulation, and a commitment to tackling corruption. The Chinese government has prioritized improving purchasing power at the bottom of the income distribution, not least to help the shift of the economy from investment-driven to consumption-driven. The pledge of publication of official guidelines on how to reduce inequality represents an important step in this direction. This provides further weight to the case of China as an emergent global leader in social policy.

Not only has China established itself as a global economic power, but it has also accepted its role in international governance. Beyond the commitment to global environmental standards and its leadership in combating climate change, it is also playing a growing role in overcoming poverty worldwide. Chinese investments have targeted the Asian and African continents, providing aid, and, more importantly, contributing to the development of better infrastructure for transport, communication, and market development. Its leadership role in establishing the Asia Infrastructure Investment Bank, the New Development Bank, and the Belt and Road Initiative similarly reflects these broader international commitments to shared development.

Naturally, the Chinese experience is not an example of a onesize-fits-all solution to poverty. Every country's journey toward poverty reduction starts from unique conditions and at a unique point in time, encountering different obstacles and opportunities. The Chinese model is not a template, but it can inspire large-scale decisions and policies to be referenced and adapted to other countries' contexts. A notable example is the early and continuous focus on rural productivity — which accomplishes the double aim of alleviating hunger and elevating the incomes of poor rural workers. The Chinese growth policy has always been informed by a deep understanding in the role of human capital growth and infrastructure in spurring economic prosperity, providing a clear lesson to other developing countries: the provision of affordable education and health care, with generous subsidies to the poorest households helps ensure the improvement of social mobility.

Over the past 40 years, China has demonstrated that the scourge of poverty can be defeated. The Chinese experience offers vital lessons which demonstrate that with the necessary will, the global targets of the sustainable development goals can be achieved. As China continues to focus on the elimination of extreme poverty domestically and further improves the lives of its citizens, its domestic achievements in poverty reduction increasingly will be strengthened by an emphasis on environmental sustainability and a focus on those at the bottom of the income distribution. Building on its unique achievements over the past 40 years, China's growing commitment to help eradicate global poverty is a source of inspiration for all those committed to the sustainable development goals.