Poverty Reduction and Effects of Pro‐poor Policies in Rural China

• DOI: http://doi.org/10.1111/j.1749-124X.2014.12060.x
• Published date: 01 March 2014
• Author: Shi Li
• Date: 01 March 2014

22 China & World Economy / 22–41, Vol. 22, No. 2, 2014

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Poverty Reduction and Effects of Pro-poor

Policies in Rural China

Shi Li*

Abstract

The present paper describes changes in poverty reduction in recent decades and the effects

of income growth and inequality on poverty reduction in rural China. The paper also

examines the main poverty alleviation policies implemented in rural areas over the past

10 years and assesses the effectiveness and efficiency of these policies from the perspective

of targeting accuracy. It is found that China has achieved significant progress in rural

poverty reduction in recent decades, although the speed of poverty reduction has varied

from one period to another. The largest contribution to rural poverty reduction has been

economic growth, which has been increasingly offset by the inequality effect on poverty

reduction. In addition, poverty alleviation policies are effective, but not efficient.

Key words: growth, inequality, poverty reduction, rural China

JEL codes: D31, H53, I32

I. Introduction

At the end of the 1970s China was a low-income country with the majority of rural people

living in poverty. In 1978, according to the official poverty line, which was set at less than

one dollar a day, the rural poverty rate was approximately 35 percent, (NBS, 2001). However,

raising the line by only one-third would increase the rate to 65 percent (Ahmad and Wang,

1991; Ma et al., 2013). The significant income gap between urban and rural households has

contributed to rural poverty. In the three decades and more since economic reform began,

China’s rapid economic growth has raised the incomes of the rural poor. Over the same

period, the Chinese Government has tried to reduce rural poverty by issuing and

implementing a number of pro-poor policies. The combination of rapid growth and pro-

poor policies has reduced rural poverty substantially. However, there is lively debate, both

*Shi Li, Professor, School of Economics and Business, Beijing Normal University, Beijing, China. Email:

lishi@bnu.edu.cn. The paper was presented in the OXCEP China Policy Forum on 7 June 2013. The

author is very grateful for the comments from John Knight, Guy Liu, Stein Ringen, Lina Song and other

participants when the paper was presented at the Forum, and for the detailed comments and suggestions

on the first version of the paper from John Knight and two referees.

23

Poverty Reduction And Effects of Pro-poor Policies in Rural China

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

domestically and internationally, about the precise contributions made by each element.

What is the contribution made by economic growth in rural China? To what extent is the

poverty reduction the result of the government’s pro-poor policies? Is it possible to

distinguish their separate impacts, and, if so, how? How can the impact of rising income

inequality within rural areas and between urban and rural areas be identified? What is the

role of rural migration in rural poverty reduction? These and other related questions need

more research.

No attempt is made in the present paper to provide a comprehensive empirical account

of why poverty has reduced and of the contribution made by the different elements. The

main purpose of this paper is to provide evidence on changes in poverty reduction and in

pro-poor policies over the past three decades, and on new patterns of rural poverty that

exist today. Two main conclusions are drawn in the paper. The first is that economic growth

has made a greater contribution to poverty reduction in rural China than the pro-poor

policies. The second is that the pro-poor policies are effective in reducing poverty, but it

remains an open question whether they are efficient. The paper is structured as follows.

Section II presents some basic facts on changes in poverty reduction in rural China. Section

III discusses specific features of poverty in rural China today. Section IV attempts to

interpret the changes in rural poverty reduction. The main poverty alleviation policies of

the past 10 years are reviewed and evaluated in Section V. Section VI predicts what new

anti-poverty policies will be introduced in rural China over the coming decade. The final

section summarizes the main findings and concludes.

II. Poverty Reduction in Rural China: Some Basic Facts

1. Dramatic Reduction in Rural Poverty

Poverty reduction was most dramatic in rural areas during the first half of the 1980s, largely

because economic reform, associated with the return to household farming, resulted in

rapid income growth. During the period 1978–1985, rural household income per capita

increased annually by 15.2 percent in real terms (NBS, 2005). Income growth particularly

benefited households engaged mainly in farming activities, who were the poorest group.

The rapid income growth of lower income households reduced the rural poverty rate

considerably. Using the official poverty line, the rural poverty rate is estimated as

33 percent for 1978 and 15 percent for 1985. This implies that the rural poverty rate fell by

over 60 percent in the first 7 years of economic reform. Significant poverty reduction during

this period is also found by other studies, such as Ravallion and Chen (2007), even though

they use higher poverty lines.

However, the Chinese Government did not issue explicit anti-poverty policies in rural