Poverty Alleviation in China: Not Quite There Yet

For decades, the Chinese economy has been facing an increasingly disturbing wealth gap between its predominantly urban elite and rural poor even though the rapidly growing economy has helped mitigate the building discrepancy in the most destitute areas. In October 2014, though, The Economist noted that the number of rural poor declined by over 16 million in 2013 as a result of national growth. The New York Times also mentioned that month that China’s economic overhaul in the 1970s lifted 660 million citizens out of poverty. In January 2014, Chinese Premier and leader of the ruling Communist Party, Li Keqiang, in a Lyndon B. Johnson-esque fashion, declared a war on poverty. China’s celebrated its first annual “Poverty Alleviation Day” later that year, an event characterized by academics and bureaucrats attending conferences across the country about the future of its lower class. Even with these huge steps, the world’s most populous nation has a long way to fully alleviate poverty.

National growth alone is not enough to eradicate poverty; more responsible government intervention is required. Last October, the Wall Street Journal estimated that 82 million rural Chinese still live on less than $1 a day. This figure is staggering when considered alongside the statistics that roughly 55 percent of the population reside in the countryside and 40 percent of total employment is in rural China. Historic reliance on agriculture in rural areas means that urbanization, while increasing, will never help the entire Chinese population. With this in mind, the persistent poverty must be addressed by state-initiated action since mere growth has proven to not be enough. Many of China’s current poverty subsidies—especially those for villages and communities—have not been as successful as anticipated.

Part of the problem is that the statistics, while standardized, do not have homogeneous interpretations. By setting the poverty threshold at 20 cents below than the international line for “extreme poverty” set by the World Bank, the Chinese government has been able to claim a that smaller portion of its population is poor. Under the World Bank’s standards, some 200 million Chinese citizens in rural areas would qualify for substantial, government aid. While the Communist Party has not released official figures about the number of citizens receiving poverty relief, the total amount of government spending on poverty alleviation subsidies is around $2 billion each year. Xinhua, the state news agency operating out of Beijing, reported last year that multiple urban structures appear opulent while their residents are the opposite. With so much manipulation regarding what constitutes poverty and to what extent it exists, the allocation of poverty relief subsidies becomes incredibly inefficient.

Financial aid is most commonly administered at the community level rather than on an individualistic basis in China. Unfortunately, the eligibility criteria at the county level is even murkier than those for individual aid. When deciding which localities to assist, the Party usually compares the average incomes, poverty rates and inflation rates of nearby provinces. On occasion, though, it also chooses to revise from an ever-changing list of secondary qualifications. In an article from April 2015, the Economist noted that while countless Chinese localities have been listed and delisted as qualifying for government aid over the past two decades, the total number of villages receiving aid has been constant at 592. With an unofficial cap on counties receiving aid, the communities themselves have an incentive to appear poorer than they may be in reality. In essence, the poorer one appears on paper, the greater the chance of aid.

The Communist Party government’s poorly defined system of awarding subsidies to combat poverty leads to inefficient targeting. Communities that need the most help often end up being unfunded, while comparatively wealthier ones benefit. County towns like Tianzhen, which have received government aid for the past several years, do not even fall into the impoverished category by China’s present standards. Last year, a piece in the Legal Daily, a Party-owned newspaper, called into question the actual use of the funds by local government. The author argued that multiple county governments were distorting their poverty statistics, using government money and refusing to disclose how the aid had been spent. State television brought the issue of bureaucratic abuse to national attention last year when it noted that two counties in the Ningxia and Hubei provinces, both of which receive poverty relief from the federal government, each spent around $16 million on new government headquarters. Although chastised by citizens at home and abroad, the Chinese government took no action to rectify the excessive expenditures.

The smokiness of the process at virtually every level of distribution makes the government’s job of poverty alleviation significantly more challenging. A necessary step in bettering long-term outcomes, then, is the creation of a more transparent process with accountable participants. This will require a major commitment on the part of President Xi Jinping and the rest of the Communist Party. For starters, the government has to remove the cap of 592 localities receiving aid. Part of the reason so many communities manipulate their numbers is partly due to the competitive the process of receiving federal aid. Lessening competition for a select few spots would bring back some modicum of authenticity to yearly poverty figures. It would also legitimize the subsidies by making them truly means-tested, rather than a function of the connections and political clout a county may wield.

What China needs now is smarter poverty reduction, not just more of it. Such change is possible, but it has to be orchestrated more appropriately by the federal government and overseen every step of the way, rather than ignored immediately after funds are disbursed. Poverty alleviation in China is making progress, but it’s not time to celebrate quite yet.