Poverty in China
Encyclopedia
Poverty in People's Republic of China refers to the state of relative or absolute material deprivation that affects hundreds of millions of Chinese citizens, particularly those living in rural areas.
Since the start of far-reaching economic reforms
in the late 1970s, growth has fueled a remarkable increase in per capita income
and a decline in the poverty rate from 85% in 1981 to 16% in 2005 (poverty being defined as the number of people living on < $1.25/day). At the same time, however, income disparities have increased. The growing income inequality is illustrated most clearly by the differences in living standards between the urban, coastal areas and the rural, inland regions. There have also been increases in the inequality of health and education
outcomes. Exact statistics are disputed, as there have been reports of China's underestimating the poverty rate.
Some rise in inequality was expected as China introduced a market system
, but inequality may have been exacerbated by a number of policies, including the dismantling of the state health care system and the "Iron rice bowl
" system of guaranteed employment and benefits; the imposition of restrictions on rural-urban migration
that have limited opportunities for the poorer rural population; the inability to sell or mortgage
rural land has further reduced opportunities; and development and investment policies that in the 1990s focused overwhelmingly on coastal regions. China has a decentralized fiscal system
that relies on local government
to fund health and education. The result has been that poor villages cannot afford good services and poor households cannot afford the high costs of basic services.
The large trade surplus that China has built up in recent years is a further problem, because it stimulates an urban industrial sector that no longer creates many new jobs, while restricting the government's ability to increase spending to improve services and address disparities. The government has recently shifted its policy to encourage migration
, fund education and health for poor areas and poor households, and rebalance the economy away from investment
and export
s toward domestic consumption
and public services
, to help reduce social disparities.
began instituting market reforms in the late 1970s, China has been among the most rapidly growing economies in the world, regularly exceeding 10 percent GDP growth annually. This growth has led to a substantial increase in real living standards
and a marked decline in poverty
. Between 1981 and 2005, the proportion of China's population living on less than $1.25/day is estimated to have fallen from 85% to 15%, meaning that roughly 600 million people were taken out of poverty. The number of people living on less than $2/day is approximately 468 million, or 36% of the population, according to 2009 estimates. At the same time, this rapid change has brought with it different kinds of stresses. China faces serious natural resource
scarcity and environmental degradation
. It has also seen growing disparities as people in different parts of the country and with different characteristics have benefited from the growth at different rates.
Starting from the pre-reform situation, some increase in income inequality was inevitable, as favored coastal urban
locations benefited first from the opening policy, and as the small stock of educated people found new opportunities. However, particular features of Chinese policy may have exacerbated rather than mitigated growing disparities. The household registration (hukou) system kept rural-urban migration below what it otherwise would have been, and contributed to the development of one of the largest rural-urban income divides in the world. Weak tenure
over rural land also limited the ability of peasants to benefit from their primary asset.
Aside from income inequality, there has also been an increase in inequality of educational outcomes and health
status, partly the result of China’s uniquely decentralized fiscal system, in which local government has been primarily responsible for funding basic health and education. Poor localities have not been able to fund these services, and poor households have not been able to afford the high private
cost of basic education and healthcare.
The large trade surplus that has emerged in China has exacerbated the inequalities, and makes them harder to address. The trade surplus stimulates the urban manufacturing
sector, which is already relatively well off. It limits the government’s scope to increase funding for public services
such as rural health and education. The government has been trying to rebalance China’s production away from investment and exports towards domestic consumption and services, to improve the country’s long-term macroeconomic health and the situation of the relatively poor in China.
Recent government measures to reduce disparities including relaxation of the hukou system, abolition of the agricultural tax, and increased central
transfers to fund health and education in rural areas.
The whole reform program is often referred to in brief as the "open door policy
". This highlights that a key component of Chinese reform has been trade liberalization and opening up to foreign direct investment
, but not opening the capital account
more generally to portfolio flows. China improved its human capital, opened up to foreign trade and investment, and created a better investment climate for the private sector
.
After joining the WTO China’s average tariff
s have dropped below 10%, and to around 5% for manufactured import
s. It initially welcomed foreign investment into "special economic zones". Some of these zones were very large, amounting to urban areas of 20 million people or more. The positive impact of foreign investment in these locations led to a more general opening up of the economy to foreign investment, with the result that China became the largest recipient of direct investment flows in the 1990s.
The opening up measures have been accompanied by improvements in the investment climate. Particularly in the coastal areas, cities have developed their investment climates. In these cities, the private sector accounts for 90% or more of manufacturing assets and production. In 2005, average pretax rate of return for domestic private firms was the same as that for foreign-invested firms. Local governments in coastal cities have lowered loss of output due to unreliable power supply to 1.0% and customs
clearance time for imports has been lowered in Chinese cities to 3.2 days.
China’s sustained growth fueled historically unprecedented poverty reduction. The World Bank uses a poverty line based on household real consumption (including consumption of own-produced crops and other goods), set at $1 per day measured at Purchasing Power Parity
. In most low-income countries this amount is sufficient to guarantee each person about 2000 calories of nutrition
per day, plus other basic necessities. In 2007, this line corresponds to about 2,836 RMB
per year. Based on household surveys, the poverty rate in China in 1981 was 64% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period.
This poverty reduction has occurred in waves. The shift to the household responsibility system propelled a large increase in agricultural output, and poverty was cut in half over the short period from 1981 to 1987. From 1987 to 1993 poverty reduction stagnated, then resumed again. From 1996 to 2001 there was once more relatively little poverty reduction. Since China joined the WTO
in 2001, however, poverty reduction resumed at a very rapid rate, and poverty was cut by a third in just three years.
increased from 0.31 at the beginning of reform to 0.45 in 2004. To some extent this rise in inequality is the natural result of the market forces that have generated the strong growth; but to some extent it is "artificial" in the sense that various government policies exacerbate the tendencies toward higher inequality, rather than mitigate them. Changes to some policies could halt or even reverse the increasing inequality. (See List of countries by income equality.)
The Nobel Prize
-winning economist Sir Arthur Lewis noted that "development must be inegalitarian because it does not start in every part of the economy at the same time" in 1954. China classically manifests two of the characteristics of development that Lewis had in mind: rising return to education and rural-urban migration. As an underdeveloped country, China began its reform with relatively few highly educated people, and with a small minority of the population (20%) living in cities, where labor productivity
was about twice the level as in the countryside.
In pre-reform China there was very little return to education manifested in salaries. Cab drivers and college professors had similar incomes. Economic reform has created a labor market in which people can search for higher pay, and one result of this is that salaries for educated people have gone up dramatically. In the short period between 1988 and 2003, the wage returns to one additional year of schooling increased from 4% to 11%. This development initially leads to higher overall inequality, because the initial stock of educated people is small and they are concentrated at the high end of the income distribution. But if there is reasonably good access to education, then over time a greater and greater share of the population will become educated, and that will ultimately tend to reduce inequality.
The large productivity and wage gap between cities and countryside also drives a high rate of rural-urban migration. Lewis pointed out that, starting from a situation of 80% rural, the initial shift of some from low-productivity agriculture to high productivity urban employment is disequalizing. If the flow continues until the population is more than 50% urban, however, further migration is equalizing. This pattern is very evident in the history of the U.S., with inequality rising during the rapid industrialization period from 1870–1920, and then declining thereafter. So, the same market forces that have produced the rapid growth in China predictably led to higher inequality. But it is important to note that in China there are a number of government policies that exacerbate this tendency toward higher inequality and restrict some of the potential mechanisms that would normally lead to an eventual decline in inequality
.
In 2009, according to the China’s National Bureau of Statistics, the urban per capita annual income at US$2525 was approximately three times that of the rural per capita annual income. This was the widest income gap recorded since 1978. Urban-biased economic policies adopted by the government contribute to the income disparities. This is also known as the ‘artificial’ result of the rural-urban divide. In terms of the share of investments allotted by the state, urban areas had a larger proportion when compared with rural areas. In the period 1986-1992, investments to urban state-owned enterprises (SOE) accounted for more than 25% of the total government budget. On the other hand, less than 10% of the government budget was allocated to investments in the rural economy in the same period by the state despite the fact that about 73-76% of the total population lived in the rural areas. However, the burden of the inflation caused by the fiscal expansion, which at that time was at a level of approximately 8.5%, was shared by all including the rural population. Such biased allocation of government finances to the urban sector meant that the wages earned by urban workers also include these government fiscal transfers. This is not forgetting the relatively higher proportions of credit loans the government also provided to the urban SOEs in the same period. Meanwhile, the wages earned by the rural workers came mainly from growth in output only. These urban-biased policies reflect the importance of the urban minority to the government relative to the rural majority.
In the period when reforms in urban areas were introduced, the real wages earned by urban workers rose inexorably. Restrictions to rural-urban migration protected the urban workers from competition from the rural workers which therefore also contributed to rural-urban disparities. According to a report by the World Bank published in 2009, 99% of the poor in China come from rural areas if migrant workers in cities are included in the rural population figures. Excluding migrant workers from the rural population figures indicates that 90% of poverty in China is still rural.
Inequality in China does not however only occur between rural and urban areas. There exist inequalities within rural areas, and within urban areas themselves. In some rural areas, incomes are comparable to that of urban incomes while in others, income remains low as development is limited. Rural-urban inequalities also do not only refer to income differentials but include inequalities in areas such as education and health care.
China’s “floating population” has since helped spur rapid development in the country because of the cheap and plentiful labor they can offer. On the flip side, many people who came from the rural areas are not able to find jobs in the cities. This surplus of rural laborers and mass internal migration will no doubt pose a major threat to the country’s political stability and economic growth. Their inabilities to find jobs compounded by the rising costs of living in the cities have made many people fall below the poverty line.
There are also large numbers of unemployed and laid-off workers from state-owned enterprises (SOEs). These enterprises have since failed to compete efficiently with the private and foreign-funded companies when China’s open-door policy was introduced. In the years 1995 to 2000, the state sector lost 31 million jobs, which amounted to 28 per cent of the jobs in the sector. The non-state sector has been creating new jobs but not in sufficient numbers to offset job losses from the state sector.
SOEs’ roles were more than employers, they are also responsible in the provision of welfare benefits, like retirement pensions, incentives for medical care, housing and direct subsidies and the like to its employees, as such these burdens greatly increased production costs. In 1992, SOE expenses on insurance and welfare took up 35% of the total wages. Therefore, many people not only lost their jobs but also, the social benefits and security that they were once so reliant on. The adverse consequences arising from the market reforms are evidently seen as a socially destabilizing factor.
Lastly, the government provided little or no social benefit for the urban poor who needed the most attention. Ministry of Labor and Social Security (MLSS) was the last line of defense against urban poverty in the provision of social insurance and the living allowance for laid-off employees. However, its effectiveness was limited in scope in which less than a quarter of the eligible urban poor actually receiving assistance.
Rural education has been marginalized by the focus on immediate economic development and the fact that urban education enjoys more attention and investment by the central government. This lack of public funding meant that children of rural families were forced to drop out of school, thus losing the opportunity to further their studies and following the paths of their parents to become low skilled workers with few chances of advancements. This leads to a vicious cycle of poverty. Due to limited educational resources, urban schools were supported by the government while village schools were provided for by the local communities where educational opportunities were possibly constrained depending on local conditions. Thus, there still exist a huge gap in teacher preparation and quality of facilities between rural and urban areas.
The two track system was then abolished in 1986 & 1992, to be replaced by the Compulsory Education Law and the Rule for the Implementation of the Compulsory Education Law respectively . Despite the emphasis of China’s education reform on providing quality and holistic education, the rural schools still lack the capacity to implement such reforms vis-à-vis their urban counterparts. The rural areas lack the educational resources of the urban areas and the rural areas are considered to be falling below the educational benchmark set in the cities . Teachers are more attracted to urban sectors with higher pay and a slew of benefits. In addition, rural villages have a difficult time finding quality teachers because of the relatively poorer standard of living in villages. As a result, some rural teachers are not qualified as they received college degrees from continuing-education programs, which is not the best type of further education one could receive.
As a result, rural students often find themselves neither competitive enough to gain admissions to colleges nor employable for most occupations. Rural residents are increasingly being marginalised in higher education, closing off their best opportunities for advancement. This is especially prominent in Tsinghua and Peking University where the percentage of rural population studying in the two universities have shrunk to 17.6 percent in 2000 and 16.3 percent in 1999, down from 50 to 60 percent in the 1950s. These numbers are the most recent reliable data that has been published and experts agree that the number might be as low as 1 percent in 2010.
) in either a rural area or an urban area, and cannot change the hukou without the permission of the receiving jurisdiction
. In practice cities usually give registration to skilled people who have offers of employment, but have generally been reluctant to provide registration to migrants from the countryside. Nevertheless, these migrants are needed for economic development
, and large numbers have in fact migrated. Many of these fall into the category of "floating population". There are nearly 200 million rural residents who spend at least six months of the year working in urban areas. Many of these people have for all practical purposes moved to a city, but they do not have official registration. Beyond the floating population, there are tens of millions of people who have left rural areas and obtained urban hukous.
So, there is significant rural-urban migration in China, but it seems likely that the hukou system has resulted in less migration than otherwise would have occurred. There are several pieces of evidence to support this view. First, the gap in per capita income between rural and urban areas widened during the reform period, reaching a ratio of three to one. Three to one is a very high gap by international standards. Second, manufacturing wage
s have risen sharply in recent years, at double-digit rates, so that China now has considerably higher wages than much of the rest of developing Asia (India, Vietnam, Pakistan, Bangladesh). This rise is good for the incumbent workers, but they are relatively high up in China’s income distribution, so that the wage increases raise inequality. It is hard to imagine that manufacturing wages would have risen so rapidly if there had not been such controls on labor migration. Third, recent studies focusing on migrants have shown that it is difficult for them to bring their families to the city, put their children in school, and obtain healthcare. So, the growth of the urban population must have been slowed down by these restrictions.
Though, it should be noted that China’s urbanization
so far has been a relatively orderly process. One does not see in China the kinds of slums and extreme poverty that exist in cities throughout Asia, Latin America, and Africa. Nevertheless, urbanization goes on: the urban share of China’s population has risen from 20% to 40% during the course of economic reform. But at the same time the hukou system has slowed and distorted urbanization, without preventing it. The system has likely contributed to inequality by limiting the opportunities of the relatively poor rural population to move to better-paying employment
.
or rural
, land in China is zoned as either rural or urban. Within both locations, property rights over land are mediocre. In urban areas people can easily sell their land and buildings, or mortgage
them to borrow. In rural areas, peasants have long-term tenure
as long as they sow the land, but they cannot mortgage or sell the use rights. The biggest distortion, however, concerns moving land from rural to urban use. China is a densely populated, water-scarce country whose comparative advantage
lies more in manufacturing and services than in agriculture. The fact that many peasants cannot earn a decent living as farmers is a signal that their labor is more useful in urban employment, hence the hundreds of millions of people who have migrated. But, at the same time, it is efficient to alienate some of the land out of agriculture for urban use.
In China, that conversion is handled administratively, requiring central approval. Farmers are compensated based on the agricultural value of the land. But the reason to convert land – especially in the fringes around cities – is that the commercial value of the land for urban use is higher than its value for agriculture. So, even if China’s laws on land are followed scrupulously, the conversion does not generate a high income for the peasants. There are cases in which the conversion is done transparently, the use rights over the land auction
ed, and the revenue collected put into the public budget to finance public goods. But still the peasants get relatively poor recompense. One government study found that 62% of displaced peasants were worse off after land conversion.
Secure land tenure is recognized as a powerful tool to reduce poverty, and the central government has begun guaranteeing all farmers 30-year land rights, strictly limiting expropriations, documenting and publicizing farmers’ rights, and requiring sufficient compensation when farmers’ lands are expropriated. A 2010 survey of 17 provinces by Landesa
found improved documentation of farmer’s land rights, but much room for improvement: 63% of farming families have been issued land-rights certificates and 53% have land-rights contracts, but only 44% have been issued both documents (as is required by law) and 29% have no document at all; farmers who have been issued these documents are far more likely to make long-term investments in their land and are financially benefiting from those investments.
There have been reports of cases where peasants complain and demonstrate because the conversions have not been done in a transparent way, and there have been accusations of corruption
of local officials. The government has published statistics on violent protests involving more than 100 people, and that number grew steadily up to 2005 (84,000 incidents), before dropping a reported 20% in 2006. Up until 2006, the way in which agricultural land was being converted to urban land probably contributed unnecessarily to increasing inequality. It has been noted that compared to other developing countries, virtually all peasants in China have land. If that asset could be used either as collateral
for borrowing, or could be sold to provide some capital
before migrants moved to the city, then it would have been helping those who were in the poorer part of the income distribution
. The administrative, rather than market-based, conversion of land essentially reduced the value of the main asset
held by the poor.
, as it indicates that there are good opportunities for skilled people and as it creates a powerful incentive for families to increase the education of their children. However, there needs to be strong public support for education and reasonably fair access to the education system. Otherwise, inequality can become self-perpetuating: if only high-income people can educate their children, then that group remains a privileged, high-income group permanently. China is at some risk of falling into this trap, because it has developed a highly decentralized fiscal system in which local governments rely primarily on local tax
collection to provide basic services such as primary education and primary health care
. China in fact has one of the most decentralized fiscal systems in the world.
China is much more decentralized than OECD countries and middle-income countries, particularly on the spending side. More than half of all expenditure takes place at the sub-provincial level. In part, the sheer size of the country explains this degree of decentralization, but the structure of government and some unusual expenditure assignments also give rise to this pattern of spending. Functions such as social security
, justice
, and even the production of national statistics
are largely decentralized in China, whereas they are central functions in most other countries.
Fiscal disparities among subnational governments are larger in China than in most OECD countries. These disparities have emerged alongside a growing disparity in economic strength among the provinces
. From 1990 to 2003, the ratio of per capita GDP of the richest to poorest province grew from 7.3 to 13. In China, the richest province has more than 8 times the per capita public spending than the poorest province. In the US
, the poorest state has about 65 percent of the revenues of the average state, and in Germany
, any state falling below 95 percent of the average level gets subsidized through the "Finanzausgleich" (and any receiving more than 110 percent gets taxed). In Brazil
, the richest state has 2.3 times the revenues per capita of the poorest state.
Inequalities in spending are even larger at the sub-provincial level. The richest county, the level that is most important for service delivery, has about 48 times the level of per capita spending of the poorest county. These disparities in aggregate spending levels also show up in functional categories such as health and education where variation among counties and among provinces is large.
These differences in public spending translate into differences in social outcomes. Up through 1990, there were only modest differences across provinces in infant survival rate, but by 2000 there had emerged a very sharp difference, closely related to the province’s per capita GDP. So too with the high-school enrollment
rate: there used to be small differences across provinces. By 2003, high-school enrollment was nearing 100% in the wealthier provinces while still less than 40% in poor provinces.
There is some redistribution within China’s fiscal system
, but not enough. Poor areas have very little tax collection and hence cannot fund decent basic education and health care. Some of their population will relocate over time. But for reasons of both national efficiency and equity, it would make sense for the state to ensure that everyone has good basic education and health care, so that when people move they come with a solid foundation of human capital
.
China’s highly decentralized fiscal system results in local government
in many locations not having adequate resources to fund basic social services. As a consequence, household
s are left to fend for themselves to a remarkable extent. The average hospital visit in China is paid 60% out-of-pocket by the patient, compared to 25% in Mexico
, 10% in Turkey
, and lower amounts in most developed countries. Poor households either forego treatment or face devastating financial consequences. In the 2003 National Health Survey, 30% of poor households identified a large health care
expenditure as the reason that they were in poverty.
The situation in education is similar. In a survey of 3037 villages in 2004, average primary school fees were 260 yuan
and average middle-school fees, 442 yuan. A family living right at the dollar-a-day poverty line would have about 900 yuan total resources for a child for a year; sending a child to middle-school would take half of that. Not surprisingly, then, enrollment rates are relatively low in poor areas and for poor families.
Since the start of far-reaching economic reforms
Chinese economic reform
The Chinese economic reform refers to the program of economic reforms called "Socialism with Chinese characteristics" in the People's Republic of China that were started in December 1978 by reformists within the Communist Party of China led by Deng Xiaoping.China had one of the world's largest...
in the late 1970s, growth has fueled a remarkable increase in per capita income
Per capita income
Per capita income or income per person is a measure of mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate and dividing it by the total population...
and a decline in the poverty rate from 85% in 1981 to 16% in 2005 (poverty being defined as the number of people living on < $1.25/day). At the same time, however, income disparities have increased. The growing income inequality is illustrated most clearly by the differences in living standards between the urban, coastal areas and the rural, inland regions. There have also been increases in the inequality of health and education
Education in the People's Republic of China
Education in the People's Republic of China is a state-run system of public education run by the Ministry of Education. All citizens must attend school for at least nine years. The government provides primary education for six years, starting at age six or seven, followed by six years of secondary...
outcomes. Exact statistics are disputed, as there have been reports of China's underestimating the poverty rate.
Some rise in inequality was expected as China introduced a market system
Market system
A market system is any systematic process enabling many market players to bid and ask: helping bidders and sellers interact and make deals. It is not just the price mechanism but the entire system of regulation, qualification, credentials, reputations and clearing that surrounds that mechanism and...
, but inequality may have been exacerbated by a number of policies, including the dismantling of the state health care system and the "Iron rice bowl
Iron rice bowl
"Iron rice bowl" is a Chinese term used to refer to an occupation with guaranteed job security, as well as steady income and benefits. The Chinese term can be compared to the similar English concept of a breadwinner with cradle to grave socialism...
" system of guaranteed employment and benefits; the imposition of restrictions on rural-urban migration
Urbanization in China
Urbanization in the People's Republic of China increased in speed following the initiation of the reform and opening policy. By the end of 2010, the mainland of the People's Republic of China had a total urban population of 665.57 million or 49.68 percent of the total population.The rural-to-urban...
that have limited opportunities for the poorer rural population; the inability to sell or mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
rural land has further reduced opportunities; and development and investment policies that in the 1990s focused overwhelmingly on coastal regions. China has a decentralized fiscal system
Chinese financial system
China's financial system is highly regulated and has recently begun to expand rapidly as monetary policy becomes integral to its overall economic policy...
that relies on local government
Local government
Local government refers collectively to administrative authorities over areas that are smaller than a state.The term is used to contrast with offices at nation-state level, which are referred to as the central government, national government, or federal government...
to fund health and education. The result has been that poor villages cannot afford good services and poor households cannot afford the high costs of basic services.
The large trade surplus that China has built up in recent years is a further problem, because it stimulates an urban industrial sector that no longer creates many new jobs, while restricting the government's ability to increase spending to improve services and address disparities. The government has recently shifted its policy to encourage migration
Migration in China
This article is about internal migration within the People's Republic of China. On top of the existing 103 million urban migrants, Chinese cities will face an influx of another 243 million migrants by 2025, taking the urban population up to nearly 1 billion people...
, fund education and health for poor areas and poor households, and rebalance the economy away from investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
and export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
s toward domestic consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
and public services
Public services
Public services is a term usually used to mean services provided by government to its citizens, either directly or by financing private provision of services. The term is associated with a social consensus that certain services should be available to all, regardless of income...
, to help reduce social disparities.
Overview
Since Deng XiaopingDeng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
began instituting market reforms in the late 1970s, China has been among the most rapidly growing economies in the world, regularly exceeding 10 percent GDP growth annually. This growth has led to a substantial increase in real living standards
Standard of living
Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
and a marked decline in poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
. Between 1981 and 2005, the proportion of China's population living on less than $1.25/day is estimated to have fallen from 85% to 15%, meaning that roughly 600 million people were taken out of poverty. The number of people living on less than $2/day is approximately 468 million, or 36% of the population, according to 2009 estimates. At the same time, this rapid change has brought with it different kinds of stresses. China faces serious natural resource
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
scarcity and environmental degradation
Environmental degradation
Environmental degradation is the deterioration of the environment through depletion of resources such as air, water and soil; the destruction of ecosystems and the extinction of wildlife...
. It has also seen growing disparities as people in different parts of the country and with different characteristics have benefited from the growth at different rates.
Starting from the pre-reform situation, some increase in income inequality was inevitable, as favored coastal urban
Urban area
An urban area is characterized by higher population density and vast human features in comparison to areas surrounding it. Urban areas may be cities, towns or conurbations, but the term is not commonly extended to rural settlements such as villages and hamlets.Urban areas are created and further...
locations benefited first from the opening policy, and as the small stock of educated people found new opportunities. However, particular features of Chinese policy may have exacerbated rather than mitigated growing disparities. The household registration (hukou) system kept rural-urban migration below what it otherwise would have been, and contributed to the development of one of the largest rural-urban income divides in the world. Weak tenure
Tenure
Tenure commonly refers to life tenure in a job and specifically to a senior academic's contractual right not to have his or her position terminated without just cause.-19th century:...
over rural land also limited the ability of peasants to benefit from their primary asset.
Aside from income inequality, there has also been an increase in inequality of educational outcomes and health
Health
Health is the level of functional or metabolic efficiency of a living being. In humans, it is the general condition of a person's mind, body and spirit, usually meaning to be free from illness, injury or pain...
status, partly the result of China’s uniquely decentralized fiscal system, in which local government has been primarily responsible for funding basic health and education. Poor localities have not been able to fund these services, and poor households have not been able to afford the high private
Private school
Private schools, also known as independent schools or nonstate schools, are not administered by local, state or national governments; thus, they retain the right to select their students and are funded in whole or in part by charging their students' tuition, rather than relying on mandatory...
cost of basic education and healthcare.
The large trade surplus that has emerged in China has exacerbated the inequalities, and makes them harder to address. The trade surplus stimulates the urban manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
sector, which is already relatively well off. It limits the government’s scope to increase funding for public services
Public services
Public services is a term usually used to mean services provided by government to its citizens, either directly or by financing private provision of services. The term is associated with a social consensus that certain services should be available to all, regardless of income...
such as rural health and education. The government has been trying to rebalance China’s production away from investment and exports towards domestic consumption and services, to improve the country’s long-term macroeconomic health and the situation of the relatively poor in China.
Recent government measures to reduce disparities including relaxation of the hukou system, abolition of the agricultural tax, and increased central
Central government
A central government also known as a national government, union government and in federal states, the federal government, is the government at the level of the nation-state. The structure of central governments varies from institution to institution...
transfers to fund health and education in rural areas.
Poverty reduction
China has maintained a high growth rate for more than 30 years since the beginning of economic reform in 1978, and this sustained growth has generated a huge increase in average living standards. 25 years ago, China had many characteristics in common with the rest of developing Asia: large population, low per capita income, and resource scarcity on a per capita basis. But in the 15 years from 1990–2005, China averaged per capita growth of 8.7%.The whole reform program is often referred to in brief as the "open door policy
Open Door Policy
The Open Door Policy is a concept in foreign affairs, which usually refers to the policy in 1899 allowing multiple Imperial powers access to China, with none of them in control of that country. As a theory, the Open Door Policy originates with British commercial practice, as was reflected in...
". This highlights that a key component of Chinese reform has been trade liberalization and opening up to foreign direct investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
, but not opening the capital account
Capital account
The current and capital accounts make up a country's balance of payment . Together these three accounts tell a story about the state of an economy, its economic outlook and its strategies for achieving its desired goals...
more generally to portfolio flows. China improved its human capital, opened up to foreign trade and investment, and created a better investment climate for the private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
.
After joining the WTO China’s average tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s have dropped below 10%, and to around 5% for manufactured import
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
s. It initially welcomed foreign investment into "special economic zones". Some of these zones were very large, amounting to urban areas of 20 million people or more. The positive impact of foreign investment in these locations led to a more general opening up of the economy to foreign investment, with the result that China became the largest recipient of direct investment flows in the 1990s.
The opening up measures have been accompanied by improvements in the investment climate. Particularly in the coastal areas, cities have developed their investment climates. In these cities, the private sector accounts for 90% or more of manufacturing assets and production. In 2005, average pretax rate of return for domestic private firms was the same as that for foreign-invested firms. Local governments in coastal cities have lowered loss of output due to unreliable power supply to 1.0% and customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
clearance time for imports has been lowered in Chinese cities to 3.2 days.
China’s sustained growth fueled historically unprecedented poverty reduction. The World Bank uses a poverty line based on household real consumption (including consumption of own-produced crops and other goods), set at $1 per day measured at Purchasing Power Parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
. In most low-income countries this amount is sufficient to guarantee each person about 2000 calories of nutrition
Nutrition
Nutrition is the provision, to cells and organisms, of the materials necessary to support life. Many common health problems can be prevented or alleviated with a healthy diet....
per day, plus other basic necessities. In 2007, this line corresponds to about 2,836 RMB
Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
per year. Based on household surveys, the poverty rate in China in 1981 was 64% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period.
This poverty reduction has occurred in waves. The shift to the household responsibility system propelled a large increase in agricultural output, and poverty was cut in half over the short period from 1981 to 1987. From 1987 to 1993 poverty reduction stagnated, then resumed again. From 1996 to 2001 there was once more relatively little poverty reduction. Since China joined the WTO
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
in 2001, however, poverty reduction resumed at a very rapid rate, and poverty was cut by a third in just three years.
Increased inequality
China’s growth has been so rapid that virtually every household has benefited significantly, fueling the steep drop in poverty. However, different people have benefited to very different extents, so that inequality has risen during the reform period. This is true for inequality in household income or consumption, as well as for inequality in important social outcomes such as health status or educational attainment. Concerning household consumption, the Gini measure of inequalityGini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....
increased from 0.31 at the beginning of reform to 0.45 in 2004. To some extent this rise in inequality is the natural result of the market forces that have generated the strong growth; but to some extent it is "artificial" in the sense that various government policies exacerbate the tendencies toward higher inequality, rather than mitigate them. Changes to some policies could halt or even reverse the increasing inequality. (See List of countries by income equality.)
The Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
-winning economist Sir Arthur Lewis noted that "development must be inegalitarian because it does not start in every part of the economy at the same time" in 1954. China classically manifests two of the characteristics of development that Lewis had in mind: rising return to education and rural-urban migration. As an underdeveloped country, China began its reform with relatively few highly educated people, and with a small minority of the population (20%) living in cities, where labor productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
was about twice the level as in the countryside.
In pre-reform China there was very little return to education manifested in salaries. Cab drivers and college professors had similar incomes. Economic reform has created a labor market in which people can search for higher pay, and one result of this is that salaries for educated people have gone up dramatically. In the short period between 1988 and 2003, the wage returns to one additional year of schooling increased from 4% to 11%. This development initially leads to higher overall inequality, because the initial stock of educated people is small and they are concentrated at the high end of the income distribution. But if there is reasonably good access to education, then over time a greater and greater share of the population will become educated, and that will ultimately tend to reduce inequality.
The large productivity and wage gap between cities and countryside also drives a high rate of rural-urban migration. Lewis pointed out that, starting from a situation of 80% rural, the initial shift of some from low-productivity agriculture to high productivity urban employment is disequalizing. If the flow continues until the population is more than 50% urban, however, further migration is equalizing. This pattern is very evident in the history of the U.S., with inequality rising during the rapid industrialization period from 1870–1920, and then declining thereafter. So, the same market forces that have produced the rapid growth in China predictably led to higher inequality. But it is important to note that in China there are a number of government policies that exacerbate this tendency toward higher inequality and restrict some of the potential mechanisms that would normally lead to an eventual decline in inequality
Income inequality metrics
The concept of inequality is distinct from that of poverty and fairness. Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific...
.
Rural-Urban divide
Much of the increase in inequality in China can also be attributed by the widening rural-urban divide, particularly the differentials in rural-urban income. A household survey conducted in 1995 showed that the rural-urban income gap accounted for 35% of the overall inequality in China.In 2009, according to the China’s National Bureau of Statistics, the urban per capita annual income at US$2525 was approximately three times that of the rural per capita annual income. This was the widest income gap recorded since 1978. Urban-biased economic policies adopted by the government contribute to the income disparities. This is also known as the ‘artificial’ result of the rural-urban divide. In terms of the share of investments allotted by the state, urban areas had a larger proportion when compared with rural areas. In the period 1986-1992, investments to urban state-owned enterprises (SOE) accounted for more than 25% of the total government budget. On the other hand, less than 10% of the government budget was allocated to investments in the rural economy in the same period by the state despite the fact that about 73-76% of the total population lived in the rural areas. However, the burden of the inflation caused by the fiscal expansion, which at that time was at a level of approximately 8.5%, was shared by all including the rural population. Such biased allocation of government finances to the urban sector meant that the wages earned by urban workers also include these government fiscal transfers. This is not forgetting the relatively higher proportions of credit loans the government also provided to the urban SOEs in the same period. Meanwhile, the wages earned by the rural workers came mainly from growth in output only. These urban-biased policies reflect the importance of the urban minority to the government relative to the rural majority.
In the period when reforms in urban areas were introduced, the real wages earned by urban workers rose inexorably. Restrictions to rural-urban migration protected the urban workers from competition from the rural workers which therefore also contributed to rural-urban disparities. According to a report by the World Bank published in 2009, 99% of the poor in China come from rural areas if migrant workers in cities are included in the rural population figures. Excluding migrant workers from the rural population figures indicates that 90% of poverty in China is still rural.
Inequality in China does not however only occur between rural and urban areas. There exist inequalities within rural areas, and within urban areas themselves. In some rural areas, incomes are comparable to that of urban incomes while in others, income remains low as development is limited. Rural-urban inequalities also do not only refer to income differentials but include inequalities in areas such as education and health care.
Urban poverty in China
The structural reforms of China’s economy have brought about a widening of the income gap and rising unemployment in the urban cities. The increasing challenge for the Chinese government and social organizations is to address and solve poverty issues in urban areas where the people are increasingly being economically and socially marginalized. According to the official estimates, 12 million people were considered as urban poor in 1993, i.e. 3.6 per cent of the total urban population, but by 2006 the figure had jumped to more than 22 million, i.e. 4.1 per cent of the total urban population and these figures are estimated to grow if the government fails to institute any effective measures to circumvent this escalating problem.China’s “floating population” has since helped spur rapid development in the country because of the cheap and plentiful labor they can offer. On the flip side, many people who came from the rural areas are not able to find jobs in the cities. This surplus of rural laborers and mass internal migration will no doubt pose a major threat to the country’s political stability and economic growth. Their inabilities to find jobs compounded by the rising costs of living in the cities have made many people fall below the poverty line.
There are also large numbers of unemployed and laid-off workers from state-owned enterprises (SOEs). These enterprises have since failed to compete efficiently with the private and foreign-funded companies when China’s open-door policy was introduced. In the years 1995 to 2000, the state sector lost 31 million jobs, which amounted to 28 per cent of the jobs in the sector. The non-state sector has been creating new jobs but not in sufficient numbers to offset job losses from the state sector.
SOEs’ roles were more than employers, they are also responsible in the provision of welfare benefits, like retirement pensions, incentives for medical care, housing and direct subsidies and the like to its employees, as such these burdens greatly increased production costs. In 1992, SOE expenses on insurance and welfare took up 35% of the total wages. Therefore, many people not only lost their jobs but also, the social benefits and security that they were once so reliant on. The adverse consequences arising from the market reforms are evidently seen as a socially destabilizing factor.
Lastly, the government provided little or no social benefit for the urban poor who needed the most attention. Ministry of Labor and Social Security (MLSS) was the last line of defense against urban poverty in the provision of social insurance and the living allowance for laid-off employees. However, its effectiveness was limited in scope in which less than a quarter of the eligible urban poor actually receiving assistance.
Unequal educational opportunity
Education is a prerequisite for the development of human capital which in turn is an important factor in a country’s overall development. Apart from the increasing income inequality, the education sector has long suffered from problems such as funding shortages and unequal allocation of education resources, adding to the disparity between China’s urban and rural life; this was exacerbated by the two track system of government’s approach to education. The first track is government -supported primary education in urban areas and the second is family -supported primary education in the rural areas.Rural education has been marginalized by the focus on immediate economic development and the fact that urban education enjoys more attention and investment by the central government. This lack of public funding meant that children of rural families were forced to drop out of school, thus losing the opportunity to further their studies and following the paths of their parents to become low skilled workers with few chances of advancements. This leads to a vicious cycle of poverty. Due to limited educational resources, urban schools were supported by the government while village schools were provided for by the local communities where educational opportunities were possibly constrained depending on local conditions. Thus, there still exist a huge gap in teacher preparation and quality of facilities between rural and urban areas.
The two track system was then abolished in 1986 & 1992, to be replaced by the Compulsory Education Law and the Rule for the Implementation of the Compulsory Education Law respectively . Despite the emphasis of China’s education reform on providing quality and holistic education, the rural schools still lack the capacity to implement such reforms vis-à-vis their urban counterparts. The rural areas lack the educational resources of the urban areas and the rural areas are considered to be falling below the educational benchmark set in the cities . Teachers are more attracted to urban sectors with higher pay and a slew of benefits. In addition, rural villages have a difficult time finding quality teachers because of the relatively poorer standard of living in villages. As a result, some rural teachers are not qualified as they received college degrees from continuing-education programs, which is not the best type of further education one could receive.
As a result, rural students often find themselves neither competitive enough to gain admissions to colleges nor employable for most occupations. Rural residents are increasingly being marginalised in higher education, closing off their best opportunities for advancement. This is especially prominent in Tsinghua and Peking University where the percentage of rural population studying in the two universities have shrunk to 17.6 percent in 2000 and 16.3 percent in 1999, down from 50 to 60 percent in the 1950s. These numbers are the most recent reliable data that has been published and experts agree that the number might be as low as 1 percent in 2010.
Restrictions on migration
Pre-reform China had a system that severely restricted people’s mobility, and that system has only slowly been reformed over the past 25 years. Each person has a registration (hukouHukou
A Hukou or huji refers to the system of 'class system' residency permits which dates back to ancient China, where household registration is required by law in People's Republic of China and Republic of China ....
) in either a rural area or an urban area, and cannot change the hukou without the permission of the receiving jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
. In practice cities usually give registration to skilled people who have offers of employment, but have generally been reluctant to provide registration to migrants from the countryside. Nevertheless, these migrants are needed for economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
, and large numbers have in fact migrated. Many of these fall into the category of "floating population". There are nearly 200 million rural residents who spend at least six months of the year working in urban areas. Many of these people have for all practical purposes moved to a city, but they do not have official registration. Beyond the floating population, there are tens of millions of people who have left rural areas and obtained urban hukous.
So, there is significant rural-urban migration in China, but it seems likely that the hukou system has resulted in less migration than otherwise would have occurred. There are several pieces of evidence to support this view. First, the gap in per capita income between rural and urban areas widened during the reform period, reaching a ratio of three to one. Three to one is a very high gap by international standards. Second, manufacturing wage
Wage
A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
s have risen sharply in recent years, at double-digit rates, so that China now has considerably higher wages than much of the rest of developing Asia (India, Vietnam, Pakistan, Bangladesh). This rise is good for the incumbent workers, but they are relatively high up in China’s income distribution, so that the wage increases raise inequality. It is hard to imagine that manufacturing wages would have risen so rapidly if there had not been such controls on labor migration. Third, recent studies focusing on migrants have shown that it is difficult for them to bring their families to the city, put their children in school, and obtain healthcare. So, the growth of the urban population must have been slowed down by these restrictions.
Though, it should be noted that China’s urbanization
Urbanization
Urbanization, urbanisation or urban drift is the physical growth of urban areas as a result of global change. The United Nations projected that half of the world's population would live in urban areas at the end of 2008....
so far has been a relatively orderly process. One does not see in China the kinds of slums and extreme poverty that exist in cities throughout Asia, Latin America, and Africa. Nevertheless, urbanization goes on: the urban share of China’s population has risen from 20% to 40% during the course of economic reform. But at the same time the hukou system has slowed and distorted urbanization, without preventing it. The system has likely contributed to inequality by limiting the opportunities of the relatively poor rural population to move to better-paying employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
.
Land policy and corruption
In the same way that people are either registered as urbanUrban area
An urban area is characterized by higher population density and vast human features in comparison to areas surrounding it. Urban areas may be cities, towns or conurbations, but the term is not commonly extended to rural settlements such as villages and hamlets.Urban areas are created and further...
or rural
Rural
Rural areas or the country or countryside are areas that are not urbanized, though when large areas are described, country towns and smaller cities will be included. They have a low population density, and typically much of the land is devoted to agriculture...
, land in China is zoned as either rural or urban. Within both locations, property rights over land are mediocre. In urban areas people can easily sell their land and buildings, or mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
them to borrow. In rural areas, peasants have long-term tenure
Tenure
Tenure commonly refers to life tenure in a job and specifically to a senior academic's contractual right not to have his or her position terminated without just cause.-19th century:...
as long as they sow the land, but they cannot mortgage or sell the use rights. The biggest distortion, however, concerns moving land from rural to urban use. China is a densely populated, water-scarce country whose comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
lies more in manufacturing and services than in agriculture. The fact that many peasants cannot earn a decent living as farmers is a signal that their labor is more useful in urban employment, hence the hundreds of millions of people who have migrated. But, at the same time, it is efficient to alienate some of the land out of agriculture for urban use.
In China, that conversion is handled administratively, requiring central approval. Farmers are compensated based on the agricultural value of the land. But the reason to convert land – especially in the fringes around cities – is that the commercial value of the land for urban use is higher than its value for agriculture. So, even if China’s laws on land are followed scrupulously, the conversion does not generate a high income for the peasants. There are cases in which the conversion is done transparently, the use rights over the land auction
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
ed, and the revenue collected put into the public budget to finance public goods. But still the peasants get relatively poor recompense. One government study found that 62% of displaced peasants were worse off after land conversion.
Secure land tenure is recognized as a powerful tool to reduce poverty, and the central government has begun guaranteeing all farmers 30-year land rights, strictly limiting expropriations, documenting and publicizing farmers’ rights, and requiring sufficient compensation when farmers’ lands are expropriated. A 2010 survey of 17 provinces by Landesa
Landesa
Landesa is a non-profit organization working to improve land rights for impoverished farming families in developing countries. Landesa partners with governments and non-governmental organizations to ensure that the world’s poorest families have secure rights over the land they till...
found improved documentation of farmer’s land rights, but much room for improvement: 63% of farming families have been issued land-rights certificates and 53% have land-rights contracts, but only 44% have been issued both documents (as is required by law) and 29% have no document at all; farmers who have been issued these documents are far more likely to make long-term investments in their land and are financially benefiting from those investments.
There have been reports of cases where peasants complain and demonstrate because the conversions have not been done in a transparent way, and there have been accusations of corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
of local officials. The government has published statistics on violent protests involving more than 100 people, and that number grew steadily up to 2005 (84,000 incidents), before dropping a reported 20% in 2006. Up until 2006, the way in which agricultural land was being converted to urban land probably contributed unnecessarily to increasing inequality. It has been noted that compared to other developing countries, virtually all peasants in China have land. If that asset could be used either as collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
for borrowing, or could be sold to provide some capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
before migrants moved to the city, then it would have been helping those who were in the poorer part of the income distribution
Income distribution
In economics, income distribution is how a nation’s total economy is distributed amongst its population.Income distribution has always been a central concern of economic theory and economic policy...
. The administrative, rather than market-based, conversion of land essentially reduced the value of the main asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
held by the poor.
Fiscal system and rural social services
Market reform has dramatically increased the return to educationEducation
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
, as it indicates that there are good opportunities for skilled people and as it creates a powerful incentive for families to increase the education of their children. However, there needs to be strong public support for education and reasonably fair access to the education system. Otherwise, inequality can become self-perpetuating: if only high-income people can educate their children, then that group remains a privileged, high-income group permanently. China is at some risk of falling into this trap, because it has developed a highly decentralized fiscal system in which local governments rely primarily on local tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
collection to provide basic services such as primary education and primary health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
. China in fact has one of the most decentralized fiscal systems in the world.
China is much more decentralized than OECD countries and middle-income countries, particularly on the spending side. More than half of all expenditure takes place at the sub-provincial level. In part, the sheer size of the country explains this degree of decentralization, but the structure of government and some unusual expenditure assignments also give rise to this pattern of spending. Functions such as social security
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...
, justice
Justice
Justice is a concept of moral rightness based on ethics, rationality, law, natural law, religion, or equity, along with the punishment of the breach of said ethics; justice is the act of being just and/or fair.-Concept of justice:...
, and even the production of national statistics
National Statistics
National Statistics may refer to the following agencies and government departments:*Office for National Statistics, the executive office of the UK Statistics Authority.*National Bureau of Statistics of China*Statistics Sweden...
are largely decentralized in China, whereas they are central functions in most other countries.
Fiscal disparities among subnational governments are larger in China than in most OECD countries. These disparities have emerged alongside a growing disparity in economic strength among the provinces
Province (China)
A province, in the context of Chinese government, is a translation of sheng formally provincial level divisions, which is an administrative division. Provinces, municipalities, autonomous regions, and the special administrative regions, make up the four types of province of administrative division...
. From 1990 to 2003, the ratio of per capita GDP of the richest to poorest province grew from 7.3 to 13. In China, the richest province has more than 8 times the per capita public spending than the poorest province. In the US
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the poorest state has about 65 percent of the revenues of the average state, and in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, any state falling below 95 percent of the average level gets subsidized through the "Finanzausgleich" (and any receiving more than 110 percent gets taxed). In Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
, the richest state has 2.3 times the revenues per capita of the poorest state.
Inequalities in spending are even larger at the sub-provincial level. The richest county, the level that is most important for service delivery, has about 48 times the level of per capita spending of the poorest county. These disparities in aggregate spending levels also show up in functional categories such as health and education where variation among counties and among provinces is large.
These differences in public spending translate into differences in social outcomes. Up through 1990, there were only modest differences across provinces in infant survival rate, but by 2000 there had emerged a very sharp difference, closely related to the province’s per capita GDP. So too with the high-school enrollment
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
rate: there used to be small differences across provinces. By 2003, high-school enrollment was nearing 100% in the wealthier provinces while still less than 40% in poor provinces.
There is some redistribution within China’s fiscal system
Chinese financial system
China's financial system is highly regulated and has recently begun to expand rapidly as monetary policy becomes integral to its overall economic policy...
, but not enough. Poor areas have very little tax collection and hence cannot fund decent basic education and health care. Some of their population will relocate over time. But for reasons of both national efficiency and equity, it would make sense for the state to ensure that everyone has good basic education and health care, so that when people move they come with a solid foundation of human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
.
China’s highly decentralized fiscal system results in local government
Local government
Local government refers collectively to administrative authorities over areas that are smaller than a state.The term is used to contrast with offices at nation-state level, which are referred to as the central government, national government, or federal government...
in many locations not having adequate resources to fund basic social services. As a consequence, household
Household
The household is "the basic residential unit in which economic production, consumption, inheritance, child rearing, and shelter are organized and carried out"; [the household] "may or may not be synonymous with family"....
s are left to fend for themselves to a remarkable extent. The average hospital visit in China is paid 60% out-of-pocket by the patient, compared to 25% in Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
, 10% in Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
, and lower amounts in most developed countries. Poor households either forego treatment or face devastating financial consequences. In the 2003 National Health Survey, 30% of poor households identified a large health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
expenditure as the reason that they were in poverty.
The situation in education is similar. In a survey of 3037 villages in 2004, average primary school fees were 260 yuan
Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
and average middle-school fees, 442 yuan. A family living right at the dollar-a-day poverty line would have about 900 yuan total resources for a child for a year; sending a child to middle-school would take half of that. Not surprisingly, then, enrollment rates are relatively low in poor areas and for poor families.
See also
- Demographics of ChinaDemographics of ChinaThis article is about the demographic features of the population of China, including population density, ethnicity, education level, health of the populace, economic status, religious affiliations and other aspects of the population....
- Digital divide in China
- Young China Scholars Poverty Research NetworkYoung China Scholars Poverty Research NetworkThe Young China Scholars Poverty Research Network co-sponsored by the Canadian organisations the International Development Research Centre and the Centre for International Governance Innovation was created to identify and support a new generation of young researchers working on poverty and...
- List of countries by percentage of population living in poverty
- Cycle of povertyCycle of povertyIn economics, the cycle of poverty is the "set of factors or events by which poverty, once started, is likely to continue unless there is outside intervention."...
- Diseases of povertyDiseases of povertyDiseases of poverty is a term sometimes used to collectively describe diseases and health conditions that are more prevalent among the poor than among wealthier people. In many cases poverty is considered the leading risk factor or determinant for such diseases, and in some cases the diseases...
- Deprivation index
- Economic inequalityEconomic inequalityEconomic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. The issue of economic inequality is related to the ideas of...
- Feminization of povertyFeminization of povertyFeminization of poverty describes a phenomenon in which women represent disproportionate percentages of world’s poor. UNIFEM describes it as "the burden of poverty borne by women, especially in developing countries"...
- Food securityFood securityFood security refers to the availability of food and one's access to it. A household is considered food-secure when its occupants do not live in hunger or fear of starvation. According to the World Resources Institute, global per capita food production has been increasing substantially for the past...
- Food vs fuelFood vs fuelFood vs. fuel is the dilemma regarding the risk of diverting farmland or crops for biofuels production in detriment of the food supply on a global scale. The "food vs. fuel" or "food or fuel" debate is international in scope, with good and valid arguments on all sides of this issue...
- Fuel povertyFuel povertyA household is said to be in fuel poverty when they cannot afford to keep adequately warm at reasonable cost, given it's income. The term is mainly used in the UK, Ireland and New Zealand, although the concept also applies everywhere in the world where poverty may be present.As the term fuel...
- Green RevolutionGreen RevolutionGreen Revolution refers to a series of research, development, and technology transfer initiatives, occurring between the 1940s and the late 1970s, that increased agriculture production around the world, beginning most markedly in the late 1960s....
- HungerHungerHunger is the most commonly used term to describe the social condition of people who frequently experience the physical sensation of desiring food.-Malnutrition, famine, starvation:...
- Income disparityIncome disparityThe gender pay gap is the difference between male and female earnings expressed as a percentage of male earnings, according to the OECD. The European Commission defines it as the average difference between men’s and women’s hourly earnings...
- Life expectancyLife expectancyLife expectancy is the expected number of years of life remaining at a given age. It is denoted by ex, which means the average number of subsequent years of life for someone now aged x, according to a particular mortality experience...
- LiteracyLiteracyLiteracy has traditionally been described as the ability to read for knowledge, write coherently and think critically about printed material.Literacy represents the lifelong, intellectual process of gaining meaning from print...
- Minimum wageMinimum wageA minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
- List of minimum wages in China (PRC)
- New Rural Reconstruction MovementNew Rural Reconstruction MovementNew Rural Reconstruction is an intellectual current and social movement initiated by Wen Tiejun and other activists to address the crisis they saw in the Chinese countryside at the start of the 21st century...
- PauperismPauperismPauperism is a term meaning poverty or generally the state of being poor, but in English usage particularly the condition of being a "pauper", i.e. in receipt of relief administered under the poor law...
- Poverty thresholdPoverty thresholdThe poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country...
- Poverty trapPoverty trapA poverty trap is "any self-reinforcing mechanism which causes poverty to persist." If it persists from generation to generation, the trap begins to reinforce itself if steps are not taken to break the cycle.-Developing world:...
- Street childrenStreet childrenA street child is a child who lives on the streets of a city, deprived of family care and protection. Most children on the streets are between the ages of about 5 and 17 years old.Street children live in junk boxes, parks or on the street itself...
- Working poorWorking poor- Definition in the United States :There are several popular definitions of "working poor" in the United States. According to the US Department of Labor, the working poor "are persons who spent at least 27 weeks [in the past year] in the labor force , but whose incomes fell below the official...
- The Hunger Site
- List of famines
Organizations and campaigns
- List of charities in China
- List of NGOs in China
- WokaiWokaiWokai is an organization that allows people to contribute directly to microfinance institutions in China, which in turn lend the money to entrepreneurs in rural China...
- Organization that allows people to contribute directly to microfinance institutions in China
Further reading
- Poverty Profile of People's Republic of China - Asian Development BankAsian Development BankThe Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
(ADB) - Azizur Rahman Khan, Carl Riskin. (2001) "Inequality and Poverty in China in the Age of Globalization." Oxford University Press ISBN 0195136497
- China - From poor areas to poor people : China's evolving poverty reduction agenda - an assessment of poverty and inequality, World Bank, 2009
Organizations
- State Council Leading Group Office of Poverty Alleviation and Reduction (Chinese & English)
- Foreign-funded projects of the State Council Poverty Alleviation Office Management Center
- Chinese Academy of Science and Technology for Development (CASTED)
- China Development Research Foundation
- China Poverty Alleviation Information Network
- China Poverty Alleviation Network
- China Poverty Network
- China Society For Promotion Of The Guangcai Program
- United Nations Development Programme in China
- China Poverty Alleviation Foundation
- International Poverty Reduction Center in China
- Poverty Statistics in China United Nations Economic and Social Commission for Asia and the Pacific
Articles
- Income disparity in China China: a shared poverty to uneven wealth?
- The Poverty Challenge for China in the New Millennium
- Communiqué on 2004 Rural Poverty Monitoring of China - National Bureau of Statistics of ChinaNational Bureau of Statistics of ChinaThe National Bureau of Statistics is an agency within the State Council of the People's Republic of China charged with the collection and publication of statistics related to the economy, population and society of the People's Republic of China at national and local levels.-List of Directors:*Xue...
- China To Raise Poverty Line
- Sweatshops in China