5

Implications of China’s
Poverty Reduction

China’s approach to poverty reduction in a global context

Although China’s rapid economic growth benefited from some favorable initial conditions
(including a relatively well-educated and healthy population, low fertility rates, high savings
rates, and equitable land distribution), the story of poverty reduction following economic trans-
formation is not unique to China. Indeed, the policy lessons emerging from this experience
are consistent with those from other high-growth episodes in East Asia (such as Japan, the
Republic of Korea, and Singapore). These lessons include a focus on education, outward ori-
entation, public investments in infrastructure, macroeconomic stability, and structural policies
broadly consistent with comparative advantage and supportive of competition (see World Bank
[2009] on economic growth, and Ravallion [2009, 2011] on its importance for poverty reduc-
tion). The beginning of reforms in agriculture, using the gains in productivity and incomes as a
catalyst to drive a subsequent labor-intensive industrialization and urbanization process, offers
an important lesson in the sequencing of development processes, of broader application to low-
income countries.
China’s experience echoes that of other East Asian countries in two other respects. The first
is China’s preference for development-oriented poverty reduction over redistribution. This pref-
erence is grounded in the belief that employment creation should be the main driver of poverty
reduction. Specific policies directing sizable transfers to poor areas and—later—to poor people
emerged 10 years after the start of the reforms and took prominence in the past decade, as the
country’s poverty rate fell below 10 percent. Nevertheless, and despite the recent expansion,
social transfers have low benefit rates and the bulk of assistance is provided in kind. Social
insurance coverage is wider than in the past, but benefit levels for noncontributory programs
are still relatively low. Instead, China, like other countries in East Asia, has spent large public
resources on infrastructure investments to improve connectivity and support investment and
job creation. This strategy has served China well up to its present level of income. But like the
“East Asian tigers” before it, China will need to find new drivers of growth going forward,
and as the economy shifts toward innovation and services, the role of social protection systems
to encourage risk-taking and cushion those left behind by rapid structural change is likely to
increase.

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54 F o u r D e ca d e s o f P o v e r t y R e d u c t i o n i n C h i n a

Second, China, like Japan, Korea, and Singapore, has been endowed with a “capable and
effective government” (Bikales 2021; Ravallion 2009), as reflected in the ability to articulate
credible policy commitments, to effectively coordinate decisions by various government depart-
ments, and to mobilize a variety of social actors to support a national goal. China’s various
poverty reduction campaigns illustrate these mechanisms well and show how the underlying
functions of China’s governance institutions are quite similar to those of other successful devel-
opment cases, even if the policies and the historical context are different (box 5.1; for a compre-
hensive treatment of these issues, see World Bank [2017]).
On the other hand, the policy context in which the economic transformation took place
clearly differed between China and its peers. In part, this reflects China’s size and diversity,
which led to a greater emphasis on gradualism with experimentation and policy discovery as a
result of interprovincial competition (rather than central policy design). In part, it reflects cau-
tion against relinquishing government control too much or too quickly (Naughton 2018).
China’s ability to experiment and learn from pilots has clearly been an important advantage
for creating conditions for adaptation. The gradualism adopted by China in reforming the
economy (associated with Deng Xiaoping saying “Crossing the river by feeling the stones”)
was reflected in the incremental approach toward the liberalization of agricultural and indus-
trial product markets, the managed approach toward migration and urbanization, and a much
larger role for the state in ownership of key assets and the allocation of resources than in
other market economies. China’s vastly different initial conditions complicate the comparison
with other cases of economic transition, such as in the former Soviet Union or Eastern Europe
(Raiser 1995). Nonetheless, gradual reforms, consistent with a growing role for competition
and markets, may have facilitated the adaptation of business and people to the scale and speed
of China’s economic transformation. The persistent efforts needed to convince farmers to adopt
new production technologies, as described in box 3.1, may serve as an example.
Cautious reforms were complemented with experimentation, allowing the country to adjust
policy when faced with evidence that it was not working (Ang 2016; Kanbur and Zhang 2009).
Local policy autonomy (inherited from the prereform era) served as an incentive for local institu-
tional innovations in an arrangement known as “experimentation under hierarchy” (Heilmann
2008) or “directed improvisation” (Ang 2016). The introduction of the household responsibil-
ity system, reforms of the township and village enterprises, and the creation of special economic
zones all started as part of successful local pilots later scaled up nationwide.
One of the emerging lessons from China’s experience is the importance of building targeted
support on the foundation of robust evidence. In the 1990s, this involved the use of house-
hold budget surveys to identify poor counties and later villages and target development efforts
accordingly. In the most recent targeted poverty reduction campaign, China started with a
comprehensive survey of its poor households, which allowed resources to be directed to where
they would have the biggest impact, differentiating among households in terms of the most
binding constraints to improving their economic opportunities. The census represented a cen-
tral element of the coordination and implementation of government policies at the local level
and in principle allowed regular monitoring and evaluation. This element of China’s approach
could be further strengthened by allowing more outside researchers to access and analyze the
vast data collected in China’s poverty registry.
Some specific policies chosen by China to tackle the social dimensions of the economic
transformation continue to be hotly debated among development economists; therefore, the
implications for other countries remain unclear. These include, among others, issues such as
China’s urbanization policies (specifically the role of the hukou). An evaluation of these policy
choices was not part of the scope of this study. Suffice to add a few retrospective reflections.
Managed urbanization was an objective of China’s policy makers early on. The inten-
tion was to limit the growth of large cities to avoid the emergence of urban poverty
through the uncontrolled development of slums, while at the same time providing sufficient
 I m p l i ca t i o n s o f C h i n a ’ s P o v e r t y R e d u c t i o n 55

BOX 5.1 China’s poverty reduction policies as a case study in pro-poor governancea

It has long been recognized that a capable, cred- evaluation criteria for local officials, with pov-
ible, and committed government is key to the suc- erty reduction management teams delegated from
cess of development strategies. The 2017 World higher levels of government to poor villages and
Development Report (World Bank 2017) aims to counties with the exclusive task of working toward
break down the core functions of effective gover- the goal and monitoring and reporting on prog-
nance to draw lessons for development. Its main ress made. While there have been reports of local
message is that effective governance institutions collusion, fraud, and diversion of resources, tight
deliver three core functions: credible commitment, supervision and unannounced inspections from
enhancing coordination, and inducing cooperation. higher levels have on the whole ensured strong
All three core functions were present in the design compliance. Fiscal incentives reinforced the per-
and implementation of China’s poverty reduction formance management targets, encouraging local
efforts, which represents an interesting case study of governments to mobilize the resources necessary
effective governance. to achieve their goals. Poverty reduction is one of
First, the credibility of the government’s commit- the few areas in which China has experimented
ment to poverty reduction was signaled early on, with with programmatic budgeting, allowing the gov-
clearly defined targets and the creation of the Leading ernments of 832 poverty-stricken counties to pool
Group on Poverty Alleviation and Development to resources across several departments, prioritized in
oversee progress and establish accountability at the line with local requirements (World Bank 2018).
highest level. When it became clear that economic Third, China has adopted a whole-of-government
growth alone would not suffice to reach the last mile and whole-of-society approach, particularly in the
of poverty reduction, President Xi declared the eradi- latest phase of the poverty eradication campaign,
cation of absolute poverty to be one of his “three which is inducing cooperation across government
decisive battles” and set it as a key target of the 13th and nongovernment stakeholders. The poverty
Five-Year Plan (2016–2020). With this rallying call it reduction campaign (like the COVID-19 [corona-
became clear that failure was not an option (Freije- virus] containment efforts more recently) is a good
Rodriguez, Hofman, and Johnston 2019). example of China’s approach to social mobiliza-
Second, the use of incentives played a very tion, including cadres at all levels, state and privately
important role in facilitating coordination across owned enterprises, academic institutions, and others.
different levels of government. Since 2013, the These stakeholders were encouraged to make sub-
membership of the Leading Group on Poverty stantial financial and human resource contributions
Alleviation and Development has been expanded to the poverty reduction campaign. Participation is
to include all central ministries and departments, perceived as a patriotic duty (Freije-Rodriguez and
reflecting the importance placed on interdepart- Zhao 2021). One example of this social mobiliza-
mental coordination. While the central govern- tion and induced cooperation across stakeholders is
ment through the Leading Group provided broad the “East-West Cooperation for Poverty Reduction”
guidance, local officials were given wide latitude described in box 4.3.
to experiment and indeed compete with each Although the governance functions exemplified
other (Ang 2016; Heilmann 2008). Clearly defined by China’s poverty reduction efforts can be applied
reward and accountability mechanisms, with a to many development contexts, the specific insti-
strong performance management system, ensured tutions developed in China are arguably unique.
that cadres aligned personal goals with central For example, few countries would have the mobiliza-
priorities (Xu 2011). Career promotion of local tion capacity of party cadres at all levels of govern-
officials depended on their performance in achiev- ment. Moreover, China’s governance mechanisms,
ing predefined outcomes (for example, economic while effective at reaching specific targets, such as
growth, social stability, or poverty reduction). economic growth or poverty reduction, confront
With the launch of the poverty reduction cam- challenges when dealing with multiple objectives
paign, poverty reduction targets in the designated requiring trade-offs across priorities (World Bank
poor counties became one of the top performance and DRC 2019).

a. This box builds primarily on CIKD (forthcoming, chapter 9), and World Bank (2017).