The World Bank released on Wednesday its poverty assessment report for China. The report brings together findings from multi-year analytical work undertaken by the World Bank on a policy-oriented assessment of poverty and inequality in China. A distinguishing feature of the report is its effort to robustly establish key underlying facts using large-sample, and in most cases, nationally-representative data, and to provide empirically-grounded analyses supplemented with in-depth qualitative work. The work received a great deal of support from the State Council's Leading Group for Poverty Alleviation and Development, and was done in close collaboration with the National Bureau of Statistics, the Chinese Academy of Social Sciences, and a team of prominent Chinese and international researchers.

A central thesis of the report, titled "From Poor Areas to Poor People: China's Evolving Poverty Reduction Agenda", is that while China's record of poverty reduction and growth over the last quarter century has been enviable with the poverty headcount rate falling from 65 percent of the population in 1981 to 4 percent in 2007 and more than half a billion people lifted out of poverty over this period, the task of poverty reduction continues and in some respects has become harder. The many factors -- policies as well as processes -- that have contributed to the past success have also brought about structural changes, profoundly transforming the country's economic and social landscape, and in the process have produced new challenges.

• The task of poverty reduction continues because measured by international standards, the number of poor remains high, with China being home to the world's second largest number of poor in any country (after India). The official poverty counts on the other hand are relatively low because they use a very stringent poverty line which is low not only by international standards, but also relative to the rapidly rising incomes and aspirations of the Chinese population.

• Vulnerability to poverty due to a variety of income shocks remains widespread. The number of those who are vulnerable to poverty is about twice as high as the number of those actually poor in a given year. Almost a third of the population was poor at least one in three years, and a large part of the severity of poverty was attributable to risk.

• Notwithstanding the tremendous success in poverty reduction, eliminating the remaining poverty has become harder because the remaining poor are dispersed and harder to reach and because the responsiveness of poverty reduction to economic growth has declined.

• Income inequality has increased significantly and China is no longer the low-inequality country it used to be a quarter century ago. The urban-rural income gap has grown and inequality within both rural and urban areas has increased.

• Disparities in other aspects of human development remain and in some cases have grown. Because of marketization of public services, incomes matter more now for access to health and education than they used to, and the burden of health and education expenditures has increased for households.

• Restructuring of the urban labor market, while promoting higher labor productivity, has also led to new challenges. Unemployment has risen while labor force participation has decreased, and growing informalization of the urban labor market has raised concerns about the welfare of urban workers

• Large-scale rural-to-urban migration has been an important channel for poverty reduction, but a large floating population in urban areas has posed challenges of integrating migrant workers and their families in urban areas.

In light of these challenges, the report calls for a broadening of China's poverty reduction agenda by embracing a more adequate poverty threshold for identifying and targeting the poor, and by viewing social protection and human development as integral elements of the overall poverty reduction program. The report notes that government policy has been rapidly evolving in response to these new challenges, and a broader poverty reduction agenda has been taking shape. The pace of efforts in this direction has quickened since 2003, witnessed for instance in the elimination of agricultural taxes, the initiation of training programs to support the transfer of rural surplus labor, the introduction of free compulsory education, the development of a nationwide rural social assistance program, the rapid expansion of rural health insurance and the medical assistance scheme in both rural and urban areas.

However, more could de done to scale up and reform policies in several areas. The report makes specific recommendations in the following areas: (i) retaining rural poverty reduction as the top priority, (ii) promoting opportunity by raising the returns to labor through policy initiatives to better harness the potential of migration for poverty reduction, as well as a reform of the area-based developmental poverty reduction programs, (iii) enhancing security by expanding and improving the coverage of the social protection (social assistance and social insurance) system in rural and urban areas, and harmonizing the rural and urban systems, (iv) fostering equity by ensuring secondary education and basic healthcare for all at affordable terms, (v) supplementing area-based poverty reduction efforts with household-oriented approaches, including the development of a unified targeting system, (vi) providing an adequate and equitable allocation of resources for local governments, (vii) strengthening institutional arrangements to improve inter-agency coordination and promote greater participation and accountability, and (viii) enhancing statistical monitoring and evaluation capacity to generate policy-relevant information that can be used for improving targeting and evidence-based reform of ongoing programs.

The report was written prior to the onset of the global financial and economic crises, the effects of which are now being felt worldwide, including in China. However, the analysis and recommendations presented in the report remain valid, and in some respects their relevance has been amplified by the current crisis. In particular, with subdued prospects for exports and market-based investment as the drivers of growth, the crisis has highlighted the need to boost domestic demand and domestic consumption. In this context, measures to stimulate consumption through an expanded role of the government in the provision of health, education and social protection and poverty alleviation programs have assumed greater significance. Specific recommendations of the report in these areas thus offer pointers for how the fiscal stimulus initiatives could simultaneously serve the interests of both restoring economic growth and reducing poverty.

(China Development Gateway April 8, 2009)