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Reducing Absolute Poverty in China: Current Status and Issues.

Since 1978, it is estimated that more than 200 million Chinese have escaped absolute poverty, as a result of Chinese government initiatives, bringing the share of China's total population living in absolute poverty to less than 10 percent,(1) This significant reduction of absolute poverty, from large numbers of poor spread widely across the countryside to pockets of poverty in remote resource-deprived areas, required a change in the government's agriculturally-focused approach to reducing poverty. Currently, however, the very limited agricultural resource base and lack of basic rural infrastructure, coupled with a deplorable health status and level of educational attainment, not only constrain the effectiveness of government poverty reduction programs in these areas, but also severely hamper single-sector agriculture and rural enterprise development interventions.

In order to guarantee a minimum safety net while improving the productivity of the poor over the long-term, revitalized social services should be integrated with improved agriculture and rural enterprise development programs. The most cost-effective large-scale poverty reduction approach may be to expand opportunities for out-migration of surplus labor from poor rural areas to more developed rural and urban areas, where there is stronger demand for unskilled workers.

BACKGROUND

Reforms to Eliminate Absolute Poverty

Rural economic reforms including the adoption of the production responsibility system, the dismantling of the commune system, agricultural product price increases and market liberalization were associated with dramatic rural economic growth from 1978 to 1985. A 1992 World Bank study, China: Strategies for Reducing Poverty in the 1990s (hereafter, referred to as Strategies or the World Bank Country Study)(2) concluded that broad participation in these rural economic reforms spurred the tremendous reduction in absolute poverty from roughly 270 million poor in 1978 to about 100 million in 1985, or from one-third to about one-tenth of the total rural population. Average rural per capita income grew at an average annual rate of 13 percent in real terms during this period, and it increased in total by more than 140 percent. The gross value of agricultural output increased by a total of 60 percent in real terms, at an average annual rate of 7 percent, more than double the total growth rate of the previous decade.

Perhaps most impressive was the increase in township and village enterprise (TVE) output and employment levels. TVEs are mostly labor-intensive enterprises engaged in manufacturing which include assembling everything from radios and phones to shoes; production of construction materials, such as gravel, wood, polished granite and other stone; and services, including transport construction and other activities. TVE output values appear to have increased fivefold in real terms from 1978 to 1985 (though part of this increase is explained by a broadening of the definition of TVE, beginning in 1984), and employment more than doubled from 28 to 70 million jobs. These trends in rural economic growth and incidence of absolute poverty are summarized in Table 1.
Table 1: Rural Economic Growth and Incidence of Absolute Poverty

 1978 1985 1990 1995

Population (in millions)
 Total 963 1,059 1,143 1,211
 Rural 790 808 841 859
Incidence of Rural Absolute Poverty
 in millions of people 260 96 97 70
 % of Rural Population in Poverty 33% 12% 12% 8%
Average Real Per Capita Income
 Rural (1978 Yuan)(*) 134 324 339 441
Real Sectoral Output Values
 Agriculture (1978 = 100) 100 162 203 290
 TVE (1978=100)(**) 100 506 1,184 6,834
Total Rural Laborers
 in millions 306 371 420 450
TVE Employment
 in millions of people 28 70 93 129


(*) Nominal rural average per capita income deflated by the rural retail consumer price index.

(**) Nominal TVE output value deflated by the implied deflator for gross industrial output.

Sources: Chinese Statistical Yearbook, 1996, State Statistical Bureau, no. 15 (China: China Statistical Publishing House, 1997). Alan Piazza, "China Strategies for Reducing Poverty in the 1990s," A World Bank Country Study, ISSN: 0253-2123 (Washington, DC: World Bank, 1992).

Current Faces of Absolute Poverty

Absolute poverty in China is currently concentrated in resource-constrained remote upland areas. Since virtually all of China's rural population received land-use rights as part of the implementation of the production responsibility system during the early 1980s, there are few if any landless laborers. Instead, the majority of the rural poor are now concentrated in resource-deficient areas, and they comprise entire communities located mostly in upland sections of the interior provinces of northern, northwestern and southwestern China. Although these poor have land-use rights, in most cases the land itself is of such low quality that it is not possible to achieve subsistence levels of crop production. Consequently, most poor consume grain and other subsistence foods beyond their own production levels, and they are negatively affected by price increases of these products. The poorest households are typically those further disadvantaged by high dependency ratios, ill health and other difficulties. Minority peoples are known to represent a highly disproportionate share of the rural poor. Available evidence does not suggest that women are greatly overrepresented among the poor, though poverty certainly does exacerbate society-wide problems of lower rates of female participation in education, higher relative female infant mortality rates and higher rates of maternal mortality.

The educational and health status of Chinese still living in absolute poverty is deplorable. At least 50 percent of the boys in some of China's poorest villages (particularly in some minority areas) and nearly 100 percent of the girls do not attend school and will not achieve literacy. The infant mortality rate (IMR) and maternal mortality ratio (MMR) in very poor counties--which exceed 10 percent and 0.3 percent, respectively--are 50 to 100 percent greater than the national average, and they are even greater in the poorest townships and villages. Incidence of infectious and endemic diseases, including tuberculosis and iodine deficiency disorders, is concentrated in poor and remote areas. Roughly 50 percent of children in households at or below the absolute poverty line are at least mildly malnourished (stunted), and iron, vitamin A and other micronutrient deficiencies remain a severe problem among the poor. As much as 90 percent of poor children suffer chronic worm infections.(3)

Recent Causes and Obstacles

A number of macroeconomic developments stymied concerted government efforts to reduce poverty during the second half of the 1980s: (a) sharply increased prices for grain and other subsistence goods adversely affected the real incomes of the majority of the rural poor; (b) rapid growth of the working-age population exceeded the expansion of employment opportunities, contributing to a temporary worsening of rural underemployment from 1989 to 1990; (c) economic growth was greater in the higher-income coastal provinces than in the lower-income inland northwestern and southwestern provinces; and (d) rural income levels stagnated during the second half of the 1980s (the average annual growth rate of real per capita rural income declined to only 1 percent from 1985 to 1990). In addition, given the limited revenues of local governments in poor areas and the lack of appropriately earmarked funding from higher levels of government, poor-area local governments have been unable to support adequate social services.

The key obstacle to reducing poverty from 1985 to 1990, however, was the absence of meaningful levels of agricultural growth and rural enterprise development in the upland areas. Many of the rural poor in 1978 resided in less remote and less hilly areas, where increased application of fertilizer, irrigation, better seed and other modern inputs brought about rapid productivity gains, and so they were able to participate in rapid agricultural growth between 1978 and 1984. However, the quick reductions of poverty through agricultural growth were largely exhausted by the end of 1984. Most of the residual poor have remained trapped in more remote upland areas, where agricultural productivity gains have proven far more elusive. Measured on a per capita basis, output of grain and subsistence foods in such areas failed to sustain any significant increase during the 1980s. Although the agriculture sector expanded in real terms from 1985 to 1989, increased output of non-grain crops and animal and aquatic products, which few of the poor either produce or consume in significant quantities, accounted for virtually all of the modest growth. By comparison, the strong annual growth between 1978 and 1984 of per capita production of grain and oilseeds, which are the subsistence crops of most immediate importance to the poor, turned negative from 1985 to 1989.

TVEs as a Solution

Township and village enterprises, an important source of employment in the rural economy as a whole, have developed very slowly in China's poorest areas. In the early 1980s, TVE employment actually decreased in poor areas as the commune system was dismantled. Employment rose only after a 1984 policy initiative supporting private rural enterprise opened opportunities for small family firms particularly suited to the limited market niches available in poor areas. However, by 1990 only 4 percent of the rural labor force in China's 120 poorest counties had found employment in rural enterprises, as opposed to the 22 percent finding such employment in the nation as a whole. Restraints on labor mobility were relaxed during the 1980s, enabling an increasing number of the rural poor to share in national TVE growth by migrating to employment opportunities in arable rural areas and in urban areas. Unfortunately, after tremendous growth from 1978 to 1988, TVE employment declined in 1989 and 1990 in response to the government's strong deflationary measures implemented during those two years. According to data gathered in the field, the absolute poor were among the first to lose their jobs during the temporary decline in TVE employment.

Current Statistics

Three sets of estimates of the number of rural absolute poor as a proportion of the total population are shown in Figure 1. The official government estimates indicate that the number of absolute poor declined to about 50 million, or about 4 percent of total population, by the end of 1997. Updated estimates suggest that the number of rural absolute poor declined to 70 million in 1995, or about 6 percent of total population, just slightly higher than the official government figure for that year.(4) The third set of estimates, which uses a much higher poverty line(5) and hence indicates that a far greater proportion of the total population is subject to poverty, also shows a significant decline in absolute poverty in recent years. These three sets of estimates confirm that, regardless of the poverty line adopted, since the early 1990s there appears to have been a resumption of the decline in rural absolute poverty. Very strong overall economic growth, coupled with a resurgence of rural income growth and TVE employment from 1990 to 1996, support this conclusion. As shown in Table 2, the growth rate of real rural income recovered from only 1 percent in the period from 1985 to 1990 to more than 5 percent in the period from 1990 to 1995. TVE employment, having declined in 1989 and in 1990, also increased sharply from 1990 to 1995, expanding by more than 7 million jobs each year on average. Grain production also experienced a strong increase during recent years, leading to a temporary decline in the market price of grain, with consequential benefits for the absolute poor.
Table 2: Rural Economic Growth Rates

 Average Incremental
 per capita Agricultural annual TVE
 rural income output value employment
Period (%) (%) (in millions of jobs)

1978-85 13.0 7.0 6.0
1985-90 1.0 5.0 4.6
1990-95 5.0 7.0 7.2


(*) Source: See Table 1.

[Figure 1 ILLUSTRATION OMITTED]

GOVERNMENT OF CHINA EFFORTS

Government Poverty Reduction Program

As part of the Chinese government's commitment to poverty reduction, most ministries and state agencies have special poverty reduction responsibilities and projects. The Ministry of Civil Affairs provides disaster relief and income maintenance support and coordinates the distribution of relief grain through the Ministry of Internal Trade's Grain Bureau system. The State Education Commission and the Ministry of Public Health administer some special programs to improve the education and health status of the poor. The recently established Agricultural Development Bank of China (ADBC) offers subsidized loans for poor-area development through a variety of funds administered by provincial bank branches and their networks of county- and lower-level banks (until mid- 1994, these funds were administered by the Agricultural Bank of China and several other banks). The regional office of the State Planning Commission administers a food-for-work program (Yigongdaizhen), which assists with building roads and riverine transport, drinking water systems, irrigation works and other capital construction in poor areas. In addition, each of 27 central ministries and agencies has its own special poor-area project and every province has its own specially funded programs.

The State Council's Leading Group for Poverty Reduction (LGPR) was established in 1986, in part to provide greater coherence to these many poverty reduction initiatives and, in particular, to expedite economic development in poor areas. Since its establishment, LGPR, with its executive agency, the Poor Area Development Office (PADO), has emerged as the principal advocate of China's rural poor and is now the key agency responsible for coordinating the nation's roughly U.S.$2 billion in annual funding for poverty reduction programs. Provinces, prefectures and counties have all established leading groups and PADOs after the central model, and many townships have a "designated person" to handle poverty reduction work.

Officially Designated Poor Counties

In 1986, using the Ministry of Agriculture's (MOA) county-level rural income data (which are estimates available for all of China's counties), LGPR developed a national roster of 331 poor counties eligible for development assistance.(6) A county was identified as poor if its 1985 average rural per capita income fell below poverty lines of Y300, Y200 or Y150 (U.S.$107, U.S.$71 or U.S.$54, respectively), depending on other locational or political factors. Average per capita grain production of less than 200 kilograms was also adopted as a second key indicator of poverty. Another 368 counties were determined to be eligible for provincial funding based on poverty lines determined by the provinces. In addition to drawing up a roster of poor counties, most provinces have identified townships in otherwise well-off counties as eligible for special assistance. As evidenced by the wide difference in qualifying income levels (Y150 to Y400 per capita in 1985 or U.S.$54 to U.S.$143), the provincial rosters include a number of counties that are relatively poor by provincial standards but that would not qualify as absolutely poor by the national minimum standard. The fact that provinces created their own special programs reflects a concern with relative poverty and, in many instances, provincial budgetary strength. On the other hand, the provincial roster does, in some cases, compensate for the incorrect exclusion of counties with average per capita income levels below the national minimum standard. The Yunnan provincial roster, for example, includes all the counties that should have received central government support for absolute poverty reduction (that is, 15 counties with average rural per capita income of between U.S.$43 and U.S.$54 in 1985). As part of the 8-7 Plan (described in the following paragraph), the national and provincial rosters of poor counties were consolidated in a single listing of 592 nationally designated poor counties.

Poverty Reduction Program Strategy

The government's poverty reduction strategy announced in the eighth Five-Year Plan (1991 to 1995) highlighted: (a) a continued emphasis on developing the productive capacity of poor-area agriculture and rural enterprise through subsidized loans; (b) better targeting of assistance to reach the poorest of the poor; and (c) improved management and coordination of poverty reduction activities. The government's poverty reduction strategy was further defined and substantially updated through the National Seven-Year (1994 to 2000) Plan for Poverty Reduction (8-7 Plan). The 8-7 Plan recognizes that the significant reduction and change in nature of absolute poverty makes it more practical and fiscally less burdensome to target increased development and social services assistance to China's remaining absolute poor. In near complete agreement with recommendations for reducing poverty in the 1990s,(7) the 8-7 Plan calls for: a) institution building and policy reform, including a strengthening of the institutions responsible for implementing explicit poverty reduction projects and programs, the establishment of an independent and objective poverty monitoring system, the concentration of available funding in the poorest counties (a number of relatively well-off counties and provinces have been "graduated" from the new poverty reduction program) and improved access of the poor to employment opportunities outside the poor areas; b) greater investment in the development of human capital, including more central government funding for health, education and relief services in the poorest areas; and, c) continued investment in poor-area agricultural, rural enterprise, road and other rural infrastructure development projects.

Recent Initiatives

The Chinese Communist Party and the State Council jointly held the National Working Conference on Poverty Reduction in Beijing in September 1996. This key meeting confirmed the government's commitment to poverty reduction work, and it marked real changes in funding, political support and strategies. A sharp increase in funding beginning in 1997 reversed a decade of decline in specially earmarked funding for poverty reduction. In nominal terms, central government funding increased from Y9.8 billion in 1996 to more than Y15.3 billion (U.S.$1.2 billion in 1996 to U.S.$1.8 billion). The increase is even greater when provincial matching funds are included. In real terms, funding for poverty reduction jumped by over 50 percent in 1997, recovering to 1987 levels.

Perhaps more important than the increase in funding, the high-level conference elevated poverty reduction in China to a key task for national development. President Jiang Zemin and Prime Minister Li Peng delivered keynote addresses to the conference, and the governors (not the vice-governors) and party secretaries (not the vice-secretaries) of each of China's western poor provinces attended the conference. A "poverty reduction responsibility system" was established, and the leaders of the western provinces and of the poor counties in those provinces now know that their successes and failures in reducing poverty will be an important factor determining the future of their careers.(8)

ISSUES OF CONTENTION

Quantitative Assessment And Targeting

Most observers believe, and official government figures confirm, that the last 20 years of economic reform and growth have been associated with an enormously favorable outcome for most of China's absolute poor. However, while there is consensus that the number of absolute poor has declined dramatically, some observers have challenged the government's assessment of the geographic location of the poor and, on this basis, have questioned the accuracy and appropriateness of targeting mechanisms of the government's poverty reduction program.

Accuracy

The government believes that about two-thirds of China's remaining absolute poor reside within areas covered by the 8-7 Plan (see description of nationally designated poor counties). However, there are two principal criticisms of the "poor county" approach to poverty monitoring and targeting. First, the World Bank Country Study(9) observed that the regionalization of poverty; according to the MOA county-level rural income data, is significantly different from that indicated by the State Statistical Bureau's (SSB) provincial rural income distribution data (which are derived from annual sample surveys of rural households). In 1989, the MOA data indicated that perhaps two-thirds of China's poor resided in southwestern China. On the other hand, the SSB provincial rural income distribution data for that year show that about two-thirds of the poor resided in northwestern and northern China. Furthermore, both the government's designation of poor counties and the subsequent allocation of poverty alleviation funding were necessarily political. Counties with favorable political credentials and strong supporters--most notably the old revolutionary base areas--were able to force their inclusion on the roster of poor counties despite having per capita income levels twice the level deemed to represent subsistence. The inclusion of politically favored counties forced the exclusion of many counties with per capita income levels well below the poverty line. Yunnan, for example, was forced to adopt a special cutoff of Y120, rather than the nationally mandated level of Y150, in order to reduce its number of poor counties.

Second, Carl Riskin's 1993 analysis of 1988 survey data for 20,000 rural and urban households indicates that over three-fifths of poor households reside outside of the officially designated poor counties. He concluded that "despite its regional concentration, poverty is also substantially present in more normal income areas, and that regionally focused anti-poverty policies may miss much of the target." Riskin's analysis and conclusion have been supported by subsequent observers.(10)

Our own numerous field visits to upland villages in the officially designated poor counties have confirmed our view that the worst rural absolute poverty in China remains predominantly concentrated in geographic pockets. However, mounting statistical evidence certainly warrants a careful and objective review of the location of poverty. It is quite likely that such a review would show that China should now move from its "poor-county" approach to poverty monitoring and targeting to a "poor-township" approach. A new listing would include poor townships within and outside the currently designated list of poor counties, and would be based on more uniform national standards.

Basic Education

In its 1995 education law, the State Education Commission (SEdC) established national implementation plans for achieving universal basic education (UBE) by the year 2000.(11) In "Economic Statistics Communique for 1996," SEdC states that the national average enrollment rate for primary-school-age children was 98.8 percent and the dropout rate was 1.3 percent. Thus, China has achieved the key targets for six-year UBE. Much of the available evidence strongly suggests, however, that these national-average figures are highly unrepresentative of the educational attainment for the 5 percent of the population which resides in the poorest areas.

Official statistics show that among the poorer half of the townships of 35 poor counties supported under a World Bank project in Yunnan, Guizhou and Guangxi,(12) the average enrollment rate was at least 10 percentage points below the national average for the same age group.(13) Special household surveys documented even greater disparities at the village level. The SSB's 1994 survey of 600 households in the poorest townships of these 35 counties showed that the average enrollment rate for children ages 6 to 12 was only 55 percent (about 65 percent among boys and 45 percent among girls). Among children ages 13 to 15, only 20 percent of boys and 5 percent of girls had graduated from primary school. It is not surprising that official statistics in these counties also indicate an average adult illiteracy rate of only 35 percent, Seventy percent of these illiterates reside in the poorest, most remote minority areas, and 78 percent of them are women.

Limited access to basic education has been the main cause of low educational status in the absolute poor areas. While the central government provides financial transfers to the poor areas of China, these resources are not adequate to meet all primary education needs, and the financing of education is mainly the responsibility of local governments and communities. As part of their cost-recovery process, these local entities require that families pay for children to attend school. The annual school fee per child averages Y80 to Y100 (approximately U.S.$10), or 25 percent of average per capita income in these areas, and it is therefore a major hindrance to many poor children's access to school. Parents often have to pay additional boarding and transportation for children in grades four and above, since these schools are usually located far from home. Due to the lack of financing, school facilities are often insufficient, dilapidated and ill-equipped.

Along with limited access, the delivery of basic primary education suffers from inadequate teacher training. Official statistics show that, in 1995, while 83 percent of primary school teachers met the state-prescribed qualifications at the national level, this percentage among some poor counties ranged from only 60 percent in Shaanxi to 74 percent in Sichuan. Current training courses focus on content and pedagogical techniques appropriate for large urban schools, but few programs offer teachers instructional methods and skills needed for the curriculum suited to small and sometimes ethnically-mixed rural schools.

Basic Health

Although China has achieved a national health status comparable to many middle income countries, the absolute poor have never had sufficient access to basic health services. Services that were available in poor areas may have decreased during the 1980s due to a relative reduction of public financing for health and the institution of fee-for-service health care in place of the commune system. During the 1980s, budgetary funding declined from 30 percent of total health expenditures to 19 percent.(14)

Consistent with the relative decline in public financing, the poor areas have suffered from deteriorating health infrastructure, decreasing personnel and, at times, slowing declines and even increases in the prevalence of some diseases. At the national level, the number of health institutions, personnel and doctors increased each year from the late 1970s through the 1980s. However, this was not the case in the rural townships and villages, where the number of township health centers and hospitals declined by about 15 percent from a peak of 55,000 in the early 1980s to 47,400 by the mid-1980s. Furthermore, government support for rural doctors decreased by 45 percent in real terms from 1979 to 1987 and the number of village-level doctors and midwives declined from 2.2 million in 1975 to 1.7 million in 1988.(15)

These problems have been most severe for the rural absolute poor. Official statistics show that, while in 1994 the IMR per 1,000 live births in Beijing, Jilin and Shandong was 11, 27 and 17 respectively, the IMR in Guizhou, Guangxi and Yunnan was 68, 60 and 74. Similarly, MMRs for the first group of provinces are 40, 47 and 40 per 10,000 respective1y, while for the second group MMRs approximated 170, 73 and 170. A survey conducted by the Ministry of Public Health in 1989 found that IMRs exceeded 100 and MMRs exceeded 300 in some poor and remote areas of China.(16)

Consistent with these indicators, it is not surprising that health expenditures in poor areas are quite low. For example, in 1994, China on average spent approximately U.S.$11 per capita for health care, of which approximately U.S.$6.50 represents public sector expenditures. Among the 35 poor counties that comprise the World-Bank-assisted Southwest Poverty Reduction Project (SWPRP), annual per capita health expenditure was only about U.S.$0.11 in Guizhou, U.S.$0.17 in Guangxi and U.S.$0.44 in Yunnan. The aforementioned 600 household survey in these counties found that approximately 90 percent of the poor households could not afford to pay for medical services. Almost half of the 24 villages surveyed did not have a health post, and villagers needed to travel on foot an average of at least 4 kilometers to reach a health facility.

RECOMMENDATIONS

Overview

China has succeeded in reducing absolute poverty. The key principles and objectives of the government's 8-7 Plan are certainly laudable, and beginning in 1997 there has been a substantial increase in the funding available for the poverty reduction program. In addition to the two measures noted above (i.e., refining the quantitative assessment of poverty and improving education and health in the poorest areas), we believe that there are a number of measures which could further improve the effectiveness and success of China's poverty reduction program. These measures include (a) developing effective strategies to improve basic education and basic health programs; (b) further increasing central government funding for the national poverty reduction program and, more importantly, making better use of that program funding; and (c) continued strengthening of the institutions responsible for poverty reduction programs.

Basic Education

An effective strategy to increase access to basic education for school-age children from the poorest families should combine upgrading school facilities with the provision of school-fee waivers and boarding assistance. The quality of basic education can be increased through adequate training of rural teachers and education system managers. In non-sinicized minority areas, effective bilingual education programs could help children overcome language hurdles in the early grades and achieve proficiency of Han Chinese upon graduation.(17) Affirmative action policies can be used to attract qualified minority (particularly female) teachers to remain in the poor areas, and these teachers can serve as role models for minority students and young girls.

Basic Health

Similarly, investments to improve basic health services for the poorest rural families must include a mechanism to finance the costs of services to those who cannot otherwise afford to pay for them. An effective basic health intervention program should include both a basic public health services component and an effective financing mechanism which makes it affordable to the poor and simple to implement. The service component should include maternal and child health, childhood immunization and priority disease intervention.

These education and health services programs cannot sustain tuition assistance and healthcare subsidies alone, but they can be sustained, and subsidies can be phased out when they are integrated with other development assistance programs, such as agricultural, rural enterprise, labor mobility and infrastructural development projects, all of which generate reasonable market-determined return to investment.

Better Utilization of Poverty Reduction Program Funding

Funding for China's poverty reduction program increased significantly in 1997, and the program is achieving a substantial sustained impact. Recommended measures to further improve the effectiveness of the utilization of this funding include:

Community Participation. In the past, the effectiveness of China's poverty reduction program has been hampered by top-down planning systems which have not adequately involved the intended beneficiaries in project design. Instead, poverty reduction programs should be designed in consultation with upland communities, involving village leaders, a sample of the poorest households, village teachers, health workers and other members of the community. LGPR has recently made great progress in strengthening community participation in two World Bank-supported poverty reduction projects (the Southwest and the Qinba Mountains Poverty Reduction Projects) and other activities.

Microfinance. Microfinance programs provide credit services to poor households for production activities through a cooperative structure which organizes a small number of households into voluntary joint-liability groups. When properly designed and implemented, microfinance programs are a proven means of achieving sustained reductions in poverty China has now begun large-scale experimentation with schemes for poverty reduction through microfinance, and it is critical that these schemes be carefully designed and implemented. If the initial rollout of microfinance is poorly planned and implemented, it may prove difficult to correct mistakes and establish a fully functional microfinance system in the future.

Financial and Economic Viability. Investments in agriculture, rural enterprise, roads and other rural infrastructure can greatly increase the productivity and well-being of the poor. However, harsh climatic conditions and resource constraints in most upland poor areas impose natural limits to investments in this sort of infrastructure. It appears that China's poverty reduction program exceeds these limits in some instances. Infrastructure investments which do not have reasonably favorable rates of return must be avoided.

Science and Technology. While considerable applied research has been undertaken and appropriate technologies developed for China's Loess Plateau area, there is inadequate support for such research and technology in much of the upland agricultural areas and in the southwest in particular. Instead, provincial agriculture bureaus extend existing off-the-shelf technology packages (which are mostly designed for irrigated flatlands) to upland rain-fed areas. There is a great need to develop applied agricultural technologies for China's poor upland areas, and LGPR should work closely with the Ministry of Agriculture and the provincial agriculture bureaus to sponsor the development of such technologies.

Institution Building

The LGPR oversees a broad program of poverty reduction initiatives. Total direct funding for the LGPR program reportedly now amounts to about U.S.$2 billion annually, and the program is successfully reducing poverty. However, it is evident that the effectiveness and efficiency of the program could be significantly enhanced through a substantial strengthening and buildup of the LGPR system at the central, provincial and local levels. The World Bank-supported Southwest and Qinba Mountains Poverty Reduction Projects, which both include an institution building component, have convincingly documented how stronger institutions and proper project management can dramatically improve the effectiveness and efficiency of available funding. Furthermore, even if the 8-7 Plan is successful in overcoming most or all of China's remaining absolute poverty, there will still be a need for large-scale central and provincial government programs to assist the very large numbers of rural "near-poor." These near-poor, comprising about 200 million rural inhabitants with income levels just slightly above the absolute poverty line, will need continued major government assistance and support during the first decades of the next century.

CONCLUSION: THE SWPRP MODEL

A New Poverty Reduction Project Model

Following two years of intensive preparation, the World Bank-supported Southwest Poverty Reduction Project (SWPRP) began implementation in 1995 in 35 poor counties in Yunnan, Guizhou and Guangxi.(18) The follow-up Qinba Mountains Poverty Reduction Project (QBPRP) began implementation in early 1997 in 26 poor counties in the Qinba mountains and Loess Plateau areas of Sichuan, Shaanxi and Ningxia.(19) Both projects strongly encourage community participation during design and implementation, and they take a multisectoral approach to poverty reduction. The multisectoral rural development model includes an integrated program of investments in:

* basic education and public health care at the village level;

* provision of off-farm employment opportunities through a voluntary system of enhanced rural labor mobility for the upland absolute poor;

* labor-intensive construction of rural roads, drinking water supply systems, small scale irrigation, agricultural drainage works, biogas digesters and other rural infrastructure;

* upland agriculture development, using menus of field and tree crop and livestock activities to increase upland agricultural productivity and reverse the trend of environmental degradation;

* support for township and village enterprises engaging in labor-intensive and commercially viable agro-processing, mineral, service and handicraft industries which have strong backward linkages to poor households and meet environmental safeguards;

* microfinance, through a cooperative structure organizing members into five-member voluntary joint-liability groups, to provide credit and savings services to poor households for production activities; and

* institution building and poverty monitoring intended to a) improve capabilities in project design, implementation, monitoring and evaluation; and b) strengthen the poverty monitoring system for the project areas by using improved SSB survey instruments to provide a credible and comprehensive poverty profile, analyze the accuracy of the targeting of benefits to the absolute poor and measure and evaluate the impact of the project's individual components.

Initial Implementation Experience

SWPRP has been under implementation for three years, and, while detailed review and evaluation of the project's individual components can be completed only in the latter years of project implementation, enough evidence is already available to support some preliminary lessons. First, the successful implementation of SWPRP from 1995 to 1997 has confirmed that the project's unique organizational and management structure can satisfy its above-average complexity and implementation capacity requirements. Second, the SWPRP model of poverty reduction represents a significant advance over previous poverty reduction mechanisms in China and is worthy of widespread adoption. Third, it is now clear which components have been most successful.

Intensive supervision work has confirmed a growing consensus on several issues. First, the education and health subcomponents and the rural infrastructure component are the activities that are most warmly received by the project's primary beneficiaries. Second, the labor mobility component provides the quickest means of overcoming poverty. Third, the agriculture component's activities require an enormous amount of preparatory work by county- and lower-level project staff. Finally, project supervision and poverty monitoring are the most difficult tasks to complete. The success of education, health and rural infrastructure activities is closely associated with the fact that project villagers actively plan and implement--and directly and immediately benefit from--these undertakings.

World Bank supervision of the project has confirmed the Chinese Project Management Office staff's views that the project's primary beneficiaries are extremely enthusiastic about the education, health, drinking water and other rural infrastructure activities, and that labor mobility can quickly lift migrant workers and (through remittances) their families above the poverty line.. Supervision missions have also observed the payoff to some successful upland agriculture activities and to effective project supervision and poverty monitoring, but have noted the heavy demands these activities place on county- and lower-level project implementation staff. Township and village enterprise development is the only SWPRP component which appears to be performing poorly. Measures have been taken to overcome the key obstacles of poor prospects for enterprise financial viability and a lack of counterpart financing, and it is hoped that the component will move forward quickly during 1998. Despite various operational problems with the model, the SWPRP and QBPRP multisectoral project approach to poverty reduction has received wide recognition within China, and it is now being extended to all of the nationally designated 592 poor counties.

(1) Absolute poverty in China is defined as the level below which income and food production are not sufficient to meet subsistence levels of food intake, shelter and clothing. By this standard, there are virtually no urban absolute poor. However, there are very large numbers of near poor--i.e., those people with levels of income and food production slightly greater than subsistence needs--in rural and, increasingly, urban China.

(2) Alan Piazza, "China: Strategies for Reducing Poverty in the 1990s," A World Bank Country Study, ISSN: 0253-2123 (Washington, DC: World Bank, 1992).

(3) "Health Plan Targets Parasites," China Daily, 4 June 1991.

(4) Piazza. This World Bank Country Study estimated the incidence of absolute poverty for each year: 1978 and 1980 to 1990. A simple extension of its methodology--i.e., inflating the 1990 rural absolute poverty line (after adjustment to account for changes in the State Statistical Bureau's calculation of rural income beginning in 1990) by the rural consumer price index--suggests that rural absolute poverty declined to about 70 million in 1995 and to less than 50 million in 1996.

(5) For international comparisons of the incidence of poverty, the World Bank uses a purchasing power parity dollar-per-day poverty line. See Martin Ravallion and Shaohua Chen, "When Economic Reform is Faster than Statistical Reform: Measuring and Explaining Inequality in Rural China," A World Bank Country Study (Washington, DC: World Bank, 1997).

(6) Based on three-year (1981 to 1983) average township-level rural per capita income data, the Research Center for Rural Development (RCRD) had earlier identified 50 million absolute poor residing in about 7,000 townships, situated in 225 counties in 11 mountainous regions. While a preferred means of monitoring poverty, the RCRD township-level methodology was not an operationally viable mechanism for targeting China's poverty reduction programs. In 1986, the State Council's Leading Group for Poverty Reduction (LGPR) switched to the county level for the purposes of poverty reduction programs and monitoring.

(7) Piazza.

(8) Jiang Zemin, "Mobilize the Entire Party and the Entire Society to Strive for the Accomplishment of the 8-7 Poverty Reduction Plan," Speech to the Conference on Poverty Reduction (Beijing: 23 September 1996); and Li Peng, "Intensify Efforts for Poverty Reduction and Resolve the Problem of Feeding and Clothing the Poor as Soon As Possible," Speech to the Conference on Poverty Reduction (Beijing: 23 September 1996).

(9) Piazza.

(10) Carl Riskin, "Income Distribution and Poverty in Rural China," in Keith Griffin and Renwei Zhao, eds., The Distribution of Income in China (London: Macmillan, 1993).

(11) Under these plans, urban and well-off rural areas, which comprise 80 percent of the total population, have already achieved six-year universal basic education (UBE) and expect to meet nine-year targets before or by year 2000. For the poorest 20 percent of China's population, 5 percent are to achieve nine-year UBE, another 10 percent will strive for five- or six-year UBE and the remaining 5 percent in poverty-stricken areas are required to achieve three- to four-year UBE.

(12) The World Bank-assisted Southwest Poverty Reduction Project (SWPRP) supports a multisectoral poverty reduction program in these 35 counties.

(13) World Bank, "Staff Appraisal Report--China: Southwest Poverty Reduction Project," Report no. 13968-CHA (Washington, DC: World Bank, 1995).

(14) Chinese Statistical Yearbook, 1996, State Statistical Bureau, no. 15 (China: China Statistical Publishing House, 1997).

(15) World Bank, "China, Long-term Issues and Options in the Health Transition" (Washington, DC: World Bank, 1992).

(16) Ministry of Public Health, Selected Edition on Health Statistics in China, 1978-90 (Beijing: Ministry of Public Health, 1991).

(17) Programs of bilingual education in primary schools are not trying to address the issue of ethnic histories or culture, but the need for effective primary education in minority communities. In addition, mobility in society or simply broader economic networks require working in the Han Chinese language.

(18) World Bank (1995).

(19) World Bank, "Staff Appraisal Report--China: Qinba Mountains Poverty Reduction Project," Report no. 16390-CHA (Washington, DC: World Bank, 1997).

Alan Piazza & Echo H. Liang(*) (*) These are the views of the authors and should not be attributed to the World Bank and/or any affiliated organizations.

Alan Piazza is a senior economist with the World Bank's East Asia Rural Development Unit. His principle interests are China's poverty reduction program, grain production, consumption and trade. He is the lead author of "China: Strategies for Reducing Poverty in the 1990s," in the World Bank Country Study and the team leader for the Southwest and Qinba Mountains Poverty Reduction Projects. Both of these World Bank-supported projects seek to establish a new model of grassroots poverty reduction in China through an integrated multisectoral rural development program. Dr. Piazza has a Ph.D. in applied economics from Stanford University

Echo H. Liang currently works for MBNA America Bank, N.A. Before joining MBNA, she worked for the World Bank on poverty reduction projects and other projects and activities in China. She was also research associate for the Cornell Food and Nutrition Policy Program at Cornell University. Dr. Liang is a graduate of Beijing University and has a Ph.D. in applied economics from Cornell University.
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Author:Piazza, Alan; Liang, Echo H.
Publication:Journal of International Affairs
Geographic Code:9CHIN
Date:Sep 22, 1998
Words:6955
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