From Equality of Deprivation to Disparity of Prosperity: The Poverty–Growth–Inequality Triangle in Post‐reform China

• Author: Yan Zhang,Guanghua Wan,Chen Wang,Hua Yin
• DOI: http://doi.org/10.1111/cwe.12236
• Date: 01 March 2018
• Published date: 01 March 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 50–67, Vol. 26, No. 2, 2018

50

*Guanghua Wan, Professor, School of Economics, Chongqing Technology and Business University, China.

Email: guanghuawan@yahoo.com; Chen Wang, Assistant Professor, School of Urban and Regional Science,

Shanghai University of Finance and Economics, China. Email: wang.chen@mail.shufe.edu.cn; Hua Yin,

Assistant Professor, School of Shanghai Development, Shanghai University of Finance and Economics, China.

Email: yin.hua@mail.shufe.edu.cn; Yan Zhang (corresponding author), Specially-Appointed Professor, School

of Economics, Chongqing Technology and Business University, China. Email: phd09010@grips.ac.jp. The

authors gratefully acknowledge nancial support from the Natural Science Foundation of China (No. 7 1703088)

and Shanghai Pujiang Program (No. 17PJC045).

From Equality of Deprivation to Disparity of Prosperity:

The Poverty–Growth–Inequality Triangle in

Post-reform China

Guanghua Wan, Chen Wang, Hua Yin, Yan Zhang*

Abstract

In the post-reform era, China achieved poverty reduction that was unprecedented in

human history This poverty reduction was accompanied by fast growth and worsening

income distribution. The present paper examines the poverty–growth–inequality triangle

in China by: (i) providing growth, inequality and poverty proles at the national and

provincial levels; (ii) uncovering the contributions of growth and inequality changes

to poverty reduction; and, nally, (iii) drawing lessons for other developing countries.

Based on the World Bank’s denition of the poverty line, China has already eliminated

abject poverty, even though the poverty rate was as high as 88.3 percent in 1981. The

remarkable record in poverty reduction is predominantly attributable to growth. The

effect of inequality varied in different periods. In addition, the impact of growth on

poverty reduction is found to be diminishing over time, a phenomenon worth further

research and policy attention.

Key words: China, income distribution, poverty-growth-inequality triangle

JEL codes: O1, P25, R1

I. Introduction

In 1978, China was one of the poorest countries in the world, with an average GDP per

capita of RMB423.2, or approximately US$184.0 based on the ofcial exchange rate.

Based on the World Bank’s denition of the poverty line of US$1.90 (2011 purchasing

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

The Poverty–Growth–Inequality Triangle in Post-reform China 51

power parity-adjusted), 88.3 percent of Chinese citizens were in poverty in 1981. The

rate for those in rural areas of China was as high as 95.6 percent.1 However, China

was an egalitarian society. According to our own estimates, the Gini index for China

remained below 0.35 from 1978 to 1988. Thus, it can be said that pre-reform China was

a country with equality of deprivation.

Reform began in late 1978, starting with the rural sector, where the majority

of citizens (87.5 percent) lived (NBS, 1981). The so-called “household agricultural

production responsibility system” replaced the commune system, and incentives

were provided to work hard and work smart. Agricultural output and incomes rose

signicantly, stimulating demand for non-farming products and laying the foundation for

industrialization. Wasting no time, reform attention was shifted to the industrial sector

in 1984 when both the urban sector and the town and village enterprises began miracle

expansions. These expansions generated demand for manpower, which was met by the

huge amount of surplus labor that existed in rural China, and aided by the improvement in

farming productivity and living standards since the late 1970s. The virtuous cycle began.

It is important to point out that in the same year of 1984 when reform was extended

to the non-farming sectors, many special economic zones were set up in the coastal

areas, signalizing the opening up of China to international trade and foreign direct

investment (FDI). The opening-up strategy received a signicant boost in early 1992,

when China’s reform architect Deng Xiaoping undertook the well-known Tour of

Southern China. Then in 2001, China joined the World Trade Organization (WTO).

China’s opening up and subsequent integration into the global economy enabled China

to exploit its comparative advantage in labor endowment and to grow without demand

constraint. As a result, China’s GDP expanded at an average rate of more than 9 percent

per annum for more than 30 years until 2011 (NBS, various years). Even after the

nancial crisis, China maintained a moderate growth rate, averaging 7.3 percent from

2012 to 2016 (NBS, various years).

The fast growth led to a dramatic improvement in the living standard of ordinary

citizens, lifting hundreds of millions of Chinese people out of poverty. According to the

World Bank, China’s poverty rate based on the US$1.90 per day poverty line decreased

from 88.3 percent in 1981 to 1.85 percent in 2013. Even based on the moderate poverty

line of US$3.10 per day, poverty reduced dramatically, from a rate of 99.1 percent in

1981 to 11.1 percent in 2013.2 In fact, the most important target of the Millennium

Development Goals of the United Nations (i.e. halving global poverty between 2000 and

2015) would not have been achieved if China were excluded.

1,2See PovcalNet of the World Bank.