China : overcoming rural poverty

WORLD BANK COUNTRY STUDY 22137 March 2001 China Overcoming Rural Poverty ..4 i . I~, :, ' ';'P _P iX X - 9st .......9 S\ .................. .i.d  Many Problems A thaich roof school building in Pinglan Village (Lingyun County Guangxi). Ethnic minority people are Y $ 9 g ;i < 9 neavily overrepresented among the poor. Arable land resources are otten very limited (notice the corn planted between the rocks behind Ihis young ethnic minority woman), and access to transport is very constrained (Lingyun County, Guangxi). Iodine deficiency and other diseases are more common in the poor and mountainous areas, and . are an important cause and effect of poverty (Zhenan County, Shaanxi). | o Overg g a@cann mainlaintheirfarmproduction. | luelwood collection contributes to odevegeation of the hillsides and, in some cases, severe environmental collapse.  A WORLD BANK COUNTRY STUDY China Overcoming Rural Poverty The World Bank Washington, D.C.  Copyright i 2001 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing March 2001 1 23404030201 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the goverunents. 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For permission to reprint individual articles or chapters, please fax your request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the World Bank at the address above, or fax no. 202-522-2422. ISBN: 0-8213-4925-2 ISSN: 0253-2123 Cover photo: These Hui ethnic minority children endure the hardships of a severe drought in Xihaigu (Tongxin County, Ningxia). Cover photo by Alan Piazza. All other photos from Alan Piazza's personal collection. Library of Congress Cataloging-in-Publication Data has been applied for.  iii CONTENTS Abstract ............................. vi Preface ............................. viii Acknowledgments ............................. ix Abbreviations and Acronyms ............................. x Executive Summary .............................. xiii A. The Remaining Challenge ............................. xiii B. The Macroeconomic Context ............................. xvi C. Poverty Reduction Programs ............................. xviii 1. TRENDS IN RURAL POVERTY IN THE 1990s . . A. Continued Reduction of Rural Poverty .I B. Location of the Poor .3 C. Other Characteristics of the Poor .8 2. THE MACROECONOMIC CONTEXT . . 15 A. Introduction .15 B. Macroeconomic Growth in China in the 1990s .16 C. Trends in Employment .23 D. Inflation and Prices .31 E. Fiscal Challenges in Poverty Reduction .33 F. Conclusions and Recommendations .37 3. POVERTY REDUCTION PROGRAMS IN CHINA . .39 A. Overview .39 B. Institutional Arrangements, Strategy, and Funding .40 C. Targeting .44 D. Poverty Programs and Instruments .45 E. A New Approach: Implementing Programs to Meet the Needs of the Poor . 53 4. MEASURES TO INCREASE MOUNTAIN AREA PRODUCTIVITY .. 58 A. Poverty in Mountain Areas ..58 B. Strategy for Mountain Area Economic Development .59 C. Recommendations for Improving Agriculture Program Effectiveness .60 D. Market Analysis and Development .68 E. Environmental Protection .69 F. Education, Health, and Nutrition .70 G. Poverty Reduction Through Labor Mobility . .72 H. Poverty Reduction Through Voluntary Resettlement . .72 Annexes Annex I Quantitative Trends .77 Annex 2 Macroeconomic Statistics .87 Annex 3 Improved Technology, Research, and Extension Needs for Mountain Agriculture .92 Annex 4 Participatory Poverty Assessments .110 Annex 5 Policies for Poverty Reduction in China .116 Bibliography ........ 147  iv Maps Map I Incidence of Rural Poverty in China by Province, 1991 Map 2 Incidence of Rural Poverty in China by Province, 1996 Map 3 China: 592 Nationally Designated Poor Counties Map 4 China: Poor Mountainous Region TABLES IN TEXT 1: Number of Rural Poor, 1990-98 .......................................................... xv 1.1: Number of Rural Poor, 1990-98 ...........................................................2 1.2: Incidence of Rural Poverty by Region and Province, 1988, 1989, 1991, and 1996 ..............4 1.3: Puding County (Guizhou) Township Disparity, 1992 ...........................................................8 2.1: Regional Patterns: Growth versus Change in Rural Poverty, Initial Level of Income and Initial Poverty Rate .......................................................... 18 2.2: The Importance of Agriculture for Poverty Reduction, 1991-96 .20 2.3: Percent of Rural Household Net Income Per Capita from Agriculture .20 2.4: Percent of Rural Household Net Income Per Capita from Wage Earnings and Transfers...21 2.5: Growth in China's Labor Force .24 2.6: Growth in Rural Enterprise Employment .25 2.7: Estimates of Migrant Employment .26 2.8: Official Data on Employment in Agriculture (millions .27 2.9: Estimated Change in Labor Use in Agriculture, 1989-96 .29 2.10: Regional Growth Rates in the Labor Force and Off-farm Employment .30 3.1: Central Government Poverty Reduction Funding (Y Million) .43 3.2: Yunnan Poverty Program Funding - Sectoral Spending (Yuan Million) .48 FIGURES IN TEXT 1: Number of Rural Poor, 1990-97 .xiii 1.1: Number of Rural Poor, 1990-97 .2 2.1: Growth in GDP .16 2.2: The Relationship Between Per Capita GDP and Rural Poverty, 1990-97 .17 2.3: Provincial Growth Rates versus Rates of Poverty Reduction .18 2.4: Wages as a Share of Income by Income Group, 1996 .22 2.5: Indices of Agricultural Employment, 1989=100 .28 2.6: Annual Change in GDP and Prices .31 2.7: Annual Change in Farm Output, Input, and Rural Consumer Prices .32 2.8: Government Revenues and Expenditures as a Percent of GNP .33  v BOXES IN TEXT 1.1: Poverty Estimates Based on Consumption Data ............................................................. 14 2.1: Fiscal Challenges in Three Poor Counties ............................................................. 35 3.1: Multisectoral Rural Development Poverty Reduction Projects ............................................ 54 4.1: Key Features of Agricultural Development in the Karst Areas ............................................ 61 4.2: Cunji Guihua-Working with Village Development Plans ................................................. 62 4.3: Impact of Project Approach-Analysis of Cashflows for Three Poor Households ............. 65 4.4: Typical Technology Improvements for Karst Areas ............................................................. 67  vi Abstract ABSTRACT China is widely recognized for its achievements in reducing absolute poverty since the adoption of a broad program of rural economic reforms beginning in 1978. Based on the government's austere rural poverty line, official estimates indicate that poverty declined from more than 30 percent of the rural population in 1978 to less than 5 percent by end-1998. The Chinese government has a strong commitment to poverty reduction, and the scale and funding of its poverty reduction program, and the sustained dramatic reduction of absolute poverty over the last twenty years of reform, are exemplary by any standards. Estimates based on an international poverty line document an equally steep decline in the incidence of poverty in China. However, since the international standard is somewhat less severe than China's official poverty line, it indicates greater numbers of poor in all years, and that by end-1998 a much larger share of the rural population-about 11.5 percent or some 106 million people-remained in poverty. While China's austere poverty line was a useful standard when the incidence of extreme poverty was greater, the international standard has now become a more appropriate measure to gauge the extent of poverty and guide the government's poverty reduction program in the next century. Available evidence also shows that an increasing share of the remaining rural poor are now concentrated in China's western provinces, and mostly within remote and mountainous townships. The educational, health, and nutritional status of these remaining rural poor is deplorable, and minority peoples and the disabled are known to represent highly disproportionate shares of the rural poor. Assisting these remaining poor requires the continuance of the existing poverty reduction system. The key issue is not allocating more funding for poverty reduction, but is instead making more efficient and effective use of available funding. This can be achieved through a number of measures. First, available poverty reduction funding should be targeted to all poor townships. The current system of targeting the nationally-designated 592 poor counties results in the provision of very little assistance for the half of the poor residing outside the designated poor counties, and to a very substantial leakage of assistance to the non-poor within the poor counties. Second, financial monitoring and supervision of the use of poverty reduction funds must be greatly strengthened. At present, the weak fiscal situation in China's poor areas motivates local governments to divert a large share of poverty reduction funding to alternative uses, and the very limited supervision of the use of available funding often leads to poor quality of poverty reduction works and activities. A number of government agencies provide funding and other support for poverty reduction, and the overall coordination and accountability of this array of assistance is inadequate. Third, the effectiveness of funding to increase the productivity of upland agriculture (where the majority of China's poor attempt to eke out subsistence levels of production) could be greatly enhanced through (a) adopting a multi-year "project-based" approach with greater community participation in design and implementation, (b) developing appropriate applied agricultural technologies, and (c) completing realistic assessments of the market prospects for a wide array of niche crops which are now being planted extensively in China's upland areas. Fourth, greater efforts must be made to provide the poor with improved access to basic education, health, credit, water supply, and roads and other basic infrastructure.  Abstract vii Fifth, past attempts to foster enterprise development in the poor areas through direct funding have had mixed results. Local government should instead focus on providing an enabling environment for rural enterprise development. Finally, China's poverty reduction work could be enhanced by forging stronger links with other government, academic and civic organizations. The next generation of poverty work could include contracting the implementation of some small projects to grass roots and civic organizations, which might enable the poverty program to try new and innovative approaches, and improve its outreach.  viii Abstract PREFACE China's "8-7" National Poverty Reduction Plan, which has been associated with sustained and significant reductions in the numbers of the extremely poor during the 1990s, will conclude at the end of 2000. The primary purposes of this report are to assess the state of poverty in China at the end of the 1990s, and to contribute to the determination of the most effective and efficient means of overcoming remaining absolute poverty in the new decade. The report is intended for all those interested in poverty reduction in China and, in particular, govemment decision-makers with responsibility for designing the next stages of the national poverty reduction program. Available evidence indicates that the majority of China's absolute poor are increasingly concentrated in remote and mountainous townships and villages in the western provinces. The report focuses heavily on these remaining rural poor, and to a lesser extent on the ethnic minority groups and the disabled people who are heavily overrepresented among the poor. At present, less than one percent of China's registered urban population have income levels below the absolute poverty line. Although reformn of state-owned enterprise and other developments may result in the emergence of urban absolute poverty as a major issue in China, the report does not cover that very important issue. The report gives considerable attention to the macroeconomic context, and finds that the trends in poverty reduction in the l990s have been at least partly determined by larger macroeconomic trends. The Asian financial crisis of the late-1990s dramatically confirmed that past achievements in poverty reduction could be quickly reversed. Although its effects on the poor in China were muted, it should be remembered that a future macroeconomic downturn could threaten China's success in poverty reduction.  Acknowledgments Lx ACKNOWLEDGMENTS This joint report was undertaken as a collaborative effort of the Leading Group for Poverty Reduction, United Nations Development Programme, and The World Bank. The LGPR team was led by Su Guoxia, the UNDP team was led by Terry McKinley, and The World Bank team was led by Alan Piazza. The UNDP team, in collaboration with the International Labor Organization, has written an additional Supplement to this joint report. (The Supplement, which is included in this report as Annex 5, provides a complete listing of the UNDP and ILO staff and consultants involved in the work of the joint report and the Supplement.) The report was written by Alan Piazza and Julia Li (East Asia and Pacific Region, Rural Development and Natural Resources Sector Unit), Enjiang Cheng, Claude Saint-Pierre, Terry Sicular, Bruce Trangmar, and Robert Weller (consultants). Major inputs were provided by Terry Mckinley (UNDP), Hu Tao, Kang Xiaoguang, Yang Qiulin, Zhao Yaqiao, and Richard Hardiman (UNDP consultants), Shaohua Chen and Martin Ravallion (Development Economics, Development Research Group), Li Guo (East Asia and Pacific Region, Rural Development and Natural Resources Sector Unit), Louise Beynon, Lisa Croll, and Zheng Baohua (DFID Consultants), and Lina Song and Wang Yihuan (The World Bank consultants). Additional inputs, comments, and review were provided by Halsey Beemer, Chen Xiaoping, Cheong Chup Lim, W. Hunter Colby, Yuri Dikhanov, Zafer Ecevit, He Jin, Paul Heytens, Janet Hohnen, Bert Keidel, Valerie Kozell, Kathie Krumm, Lena Lindberg, Lu Lei, Tamar Manuelyan Atinc, Albert Park, Thomas Rawski, Arlene Reyes, Scott Rozelle, Mikiko Sasaki, Sari Soderstrom, Juergen Voegele, and Wu Guobao. The report is in large part based on findings of missions which visited Beijing, Anhui, Chongqing, Guangxi, Guizhou, Hunan, Qinghai, Sichuan and Yunnan during July 1998 and October/November 1998. These missions comprised a number of LGPR, UNDP and The World Bank staff and consultants, and benefited greatly from meetings and support from a number of staff, researchers, and officers of a variety of government agencies, donors, and domestic and international NGOs. In particular, the missions would like to gratefully acknowledge the time and generous assistance provided by the national, provincial, and lower level offices and various departments of the All China Women's Federation, China Disabled Persons' Federation, Chinese Academy of Agricultural Sciences, Chinese Academy of Sciences, LGPR's Foreign Capital Project Management Center, Ministry of Agriculture, Ministry of Science and Technology, Ministry of Water Resources, State Ethnic Affairs Commission, State Forestry Administration, State Statistical Bureau, CIMMYT, Ford Foundation, GTZ, IFAD, UNICEF, Winrock International, and WFP. The missions also benefited greatly from small group meetings with many poor farm households at the local level. Their assistance and participation is very much appreciated, and it is hoped that this report contributes to the further improvement of their well- being.  x Abbreviations and Acronyms ABBREVIATIONS AND ACRONYMS 8-7 Plan 8-7 National Poverty Reduction Plan ABC Agricultural Bank of China ADB Asian Development Bank CAS Chinese Academy of Sciences CDPF China Disabled Persons' Federation CEIS China Economic Information Service DFID Department for International Development FTA Farmner Technical Association FFW Food for Work FURC Foundation for Underdeveloped Regions in China GDP Gross Domestic Product GONGO Government Organized NGO ICIMOD International Centre for Integrated Mountain Development IFAD International Fund for Agriculture Development ILO International Labor Organization ILUS Integrated Land Use Systems Project LGPR Leading Group for Poverty Reduction MOA Ministry of Agriculture MOF Ministry of Finance MOST Ministry of Science and Technology MWR Ministry of Water Resources NGO Non-Governmental Organization PADO Poor Area Development Office PMO Project Management Office PPA Participatory Poverty Assessment PPP purchasing power parity PRA Participatory Rural Appraisal QBPRP Qinba Mountains Poverty Reduction Project RCC Rural Credit Cooperative SDPC State Development and Planning Commission SEAC State Ethnic Affairs Commission SEU Sheep Equivalent Units SFA State Forestry Administration SGWS Sichuan Grassland Working Station SOE State-Owned Enterprise SPC State Planning Commission (now SDPC) SSB State Statistical Bureau  Abbreviations and Acronyms xi SWPRP Southwest Poverty Reduction Project TVE Township and Village Enterprise UBE Universal Basic Education UNDP United Nations Development Programme VDP Village Development Plan WFP World Food Programme WF Women's Federation WS Work Station   Executive Summary xiii EXECUTIVE SUMMARY A. THE REMAINING CHALLENGE Twenty Years of Poverty Reduction. China is widely recognized for its achievements in reducing absolute poverty since the adoption of a broad program of rural economic reforms beginning in 1978. Broad participation in the subsequent reformn-driven economic growth, together with a well-funded national poverty reduction program, have brought about a tremendous reduction in rural absolute poverty during the past twenty years. Official estimates indicate that rural poverty declined from roughly 260 million poor in 1978 to 42 million in 1998, or from one-third to about one-twentieth of total rural population. These official estimates are based on the government's austere poverty line equivalent to $0.66 per day (in constant 1985 purchasing power parity dollars). The World Bank has developed Figure 1: Number of Rural Poor, an international poverty standard of 1990-97 $1.00 per day (in 1985 purchasing power parity dollars) for cross-country 300 compaisonsof poverty. Estimates 250 2002 based on this somewhat less severe c 150 l 0 100 poverty line indicate substantially - 5l greater numbers of absolute poor in E 0 China in all years, but do confirm the yO oP oP