Eradication of Poverty in China

China is heavily stepping up the efforts to completely eradicate absolute poverty (verbatim: shed off poverty 脱贫), even in the remotest regions. This is the last push to reach the major target of the so-called 100-year plan (or rather “target for 100 years of struggle” 一百年奋斗目标), which was formulated explicitly by Deng Xiaoping and stated that 100 years after the Communist Party of China (CPC) was formed, no-one in China should live in absolute poverty any more, a basically healthy society (全面小康社会) shall be comprehensively achieved. Last week CNN featured a long article on these efforts, and as I write this text I checked the CPC newspaper China Daily Chinese edition: within the last 24h there were 22 articles published with the keyword “shed of poverty”. Reason enough to look at the status quo, the measures and the challenges ahead, starting with an impressive two graphs:

The left side should bring tears of joy to any socialist worldwide, as the moral legitimization for socialism since Marx’ times has always been, that it does more for the poor than capitalism, no matter how the absolute growth rates look like. We see one line going up and for lines going down. Going up is the GDP per capita, which is one main indicator of a society’s wealth, much more than absolute GDP. To use economists’ favorite picture, it is the size of the cake[1] available for each person in a country, while absolute GDP is the total size of the cake. What’s the point of a bigger cake if more people have to share it? So the size per person is more relevant if we talk individual poverty. But what’s the point of a lot of cake available to each person, if in fact the richest take all the cake? So a second graph is needed, which is the statistic measuring inequality, for which the most common measure is the Gini Index. Now this Gini graph on the right is a truly amazing line for economists, because typically fast economic growth is accompanied by growing inequality, the main reason being that fast economic growth offers huge opportunities for investing in all kinds of ventures – investing needs a lot of money, thus the rich profit mostly from these opportunities. On the other hand a decreasing Gini is often tied to more egalitarian policies like higher taxes for more social welfare, or strong workers unions negotiating higher salaries, which in capitalist theory are all said to hinder growth. The fact that China combined massive economic growth with declining inequality is very impressive, hence my suggested “tears of joy”. The rapid fall of the other four lines on the left are the consequence of this GDP-Gini-combination (or you can say the Gini is the consequence of the left-side charts, as they are different statistics from the same data).

The main message is, absolute poverty as almost vanished already in 2015, 6 years ahead of target, if we take absolute poverty as defined by the World Bank (1.9 US$ per day in US prices) and measured in purchasing power parity (PPP to accommodate for the fact that many products in China are much cheaper than in the US). The Chinese government doesn’t revert to this more lenient approach, and instead uses a tighter measure for poverty – opposing to what CNN writes, by the way. Where does the error of CNN come from? In monetary terms the Chinese threshold of absolute poverty is lower than that of the World Bank (1.1 US$ per day instead of 1.9US$ per day), but China doesn’t apply the PPP correction, thus compares Chinese incomes to US prices. Which one is more lenient a definition? We see it in the numbers given by the non-Chinese World Bank: the Chinese “National Poverty Line” still saw some 3.1% in absolute poverty in 2017, while the international poverty definition in 2015 already was at 0.7%. The World Bank is very explicit about this: the official poverty line (at 2,300 renminbi for the rural population in 2010) is higher than the global poverty line (2011 PPP), spatially adjusted for urban/rural price differences (around 1,990 renminbi for rural areas for the same year). 

So what is happening for China to achieve these incredible successes? Measures include local economic and infrastructural measures, as well as national welfare and social policy measures.

Local measures include building of concrete roads and the support of rural tourism. Yes, some remote villages still aren’t connected to even basic concrete roads, slowing down traffic, or in rainy seasons in the southern West of China completely inhibiting any traffic, which makes it impossible for those villagers to the otherwise sprawling online economy, which relies on rapid delivery times across the continent-sized nation. Concrete roads don’t only allow for much more efficient trade, especially sale of fresh vegetables and produce, a main source of income for rural villages; they also allow for a recently emerging type of (China-internal) tourism: slow, eco-tourism into untouched natural beauty. While from a preservationist perspective this may hurt some of the most natural habitats in China to some extent, and we can only hope that the local officials will focus on healthy, protective tourism, not on mass-tourism. As these local leaders usually are Communist Party leaders with higher education sent from far away cities, they principally do have an understanding of environmental degradation and the risk of tourism undermining its own main resources, if done to excessively. The question is just how “panicky” they must deliver results, as eradication of poverty is one of the highest priorities of the national Communist Party all the way up to Xi Jinping. Failure to deliver may end careers, as CNN correctly points out.

National measures first of all include the massive building of schools and small urban health centers, from minor hospitals, to mainly natural medicine (traditional Chinese medicine TCM) practices, to simple hygiene education centers increasing the awareness of health issues in groups with very little or no formal education. A second national measure is the establishment of schools in even the most remote places, to come to the impressive 99.6% rate of primary school attendance according to UNICEF (remember: this includes the above mentioned villages without concrete road access).

In terms of welfare within the last 5 years basic health insurance coverage was extended to all Chinese, in addition to basic health insurance there are an insurance for “serious illness” (as Chinese health insurance usually works as “pay first reimburse later” which is impossible for very poor with serious illness to pay large medical fees first) and “medical aid” for the poorest who can’t even pay for basic health expenses. Source: People Daily

If need be, China has already reached a strong enough position to be absolutely sure to reach the 2021 goal of complete poverty eradication. If nothing else works, China has enough funds to simply “throw money at” the remaining poorest districts. But this basic healthy society is by far not the end goal. The second 100-year target is to become a “modernized, powerful nation with strong and wealthy, democratic, highly civilized, harmounious, beautiful Socialism” (富强民主文明和谐美丽的社会主义现代化强国) by 2049 - 100 years after the People’s Republic of China was formed. For this many further steps are needed. One important part of the poor who are above the absolute poverty line, are the so-called “migrant workers”. These are people registered as farmers in some village, but actually living in cities via the so-called “Hukou” （户口）. This Hukou-system was needed during the “command planned-economy” when planners needed to know who needs food when and where, after market reforms the system was continued to substantially hinder China-internal migration, with the negative effect on many poor who wanted to make it in a big city but ended up being second class citizens – but also the positive effect that this inhibiting migration has quite effectively prevented true slums from emerging. Hukou would be an article in itself, but the current orders from the powerful National Development and Reform Commission (NDRC 发改委) are very clear: class II sized cities with 1-3 million inhabitants must drop all restrictions for residents to receive local hukous, class I size cities with 3-5 million inhabitants must substantially relax restrictions to localization of hukou. As the hukou grants access to local health care and education for the children, these measures will substantially reduce the number of children living in villages with grandparents, while the parents work as unregistered migrant workers in the cities. The effects? Better education for these children, and a better life for these families where children and parents can be together, but an even faster depopulation of remote villages where grandparents will be left behind alone, schools will have no more students and therefore also young teachers will disappear. This depopulation will bring hardship to some of those elderly folks, but for the economic perspective it makes it much easier to eradicate poverty, and for the environmentalist perspective some larger areas without people living in them is definitely a good thing. For the social science perspective of course, the disappearance of local customs, languages, and traditions is a sad thing, but there is no doubt the CPC is willing to take this sacrifice, while most locals are more than happy to give up their customs in order to live a more prosperous life in a more modern, wealthier city.

[1] I am not sure if the ?cake“ is an intended pun at the French Revolution, where queen Marie Antoinette allegedly said the poor should eat cake if they can’t have bread, showing her complete ignorance of the circumstances of the poor. The more obvious reason for economists to talk about cake is the so-called “cake chart” commonly used to show how GDP is distributed among different parts of society. Should the focus be on distributing evenly, or on making the overall size of the diagram (i.e. total GDP) bigger?

Sources for this article:

https://edition.cnn.com/2019/04/19/asia/poverty-alleviation-2020-xi-jinping-intl/index.html?no-st=1555898514

https://databank.worldbank.org/data/download/poverty/33EF03BB-9722-4AE2-ABC7-AA2972D68AFE/Global_POVEQ_CHN.pdf

https://www.unicef.org/infobycountry/china_statistics.html

https://gongyi.people.com.cn/n1/2019/0422/c151132-31042598.html

https://baike.baidu.com/item/两个一百年/4272808