Lessons from China

Written by Sarthak Agrawal 

Under the Communist Party of China (CPC), the world’s most populous country claims to have eradicated extreme poverty from its shores. This fulfils a five-year-old promise Xi Jinping made to the Chinese people to get rid of destitution by 2020. Since 1978, when market-driven reforms propelled China to its dominant status today, 800 million individuals have exited poverty as per the World Bank — a remarkable feat with few parallels.

Despite consistently recording double-digit GDP growth rates from a successful export-led industrialisation strategy, some 100 million Chinese remained mired in deprivation as recently as 2012. Most were concentrated in the rural west, lived in inhospitable climes, or faced insurmountable physical and mental disabilities.

However, in November 2020, China’s last poverty-stricken county bid farewell to extreme deprivation, just in time for the centenary celebrations of the CPC this year.

Interestingly, India under Prime Minister Narendra Modi has also made poverty elimination a centrepiece of its agenda. However, the Centre has fixed its eyes on attacking multidimensional poverty — a United Nations measure that considers factors like access to sanitation, electricity and housing among others in computing deprivation. Either by design or coincidence, all of the Modi government’s flagship schemes — Swachh Bharat Mission, Ujjwala Yojana, Saubhagya scheme, PM Awas Yojana, and the latest Jal Jeevan Mission — are targeting individual components of the multidimensional poverty indicator.

The CPC, however, focused on getting rid of the more conventional income poverty. In 2013, targeted poverty alleviation became the mantra of the communist government under which local officials were asked to draw customised plans for poor households. Later a combination of assets, subsidies and upskilling was used to bring the plans to life. Regular and granular data collection was a major component of this programme — the system allows senior officials in the capital to monitor progress for individual families anywhere in the country.

In contrast, India’s latest poverty figures from 2011-12 are severely outdated. These showed that the official poverty rate fell from 45 per cent in 1993-94 to 22 per cent in 2011-12 as 135 million people exited penury over two decades. The survey used to measure poverty in India was last conducted in 2017-18. However, it showed a baffling fall in consumption expenditure and was quickly junked by the Centre due to which we lack any information on poverty in the last decade.

Beijing also banked upon relocation of poor households to quickly achieve its poverty elimination targets. Officials believed that living in inaccessible terrains lowered the incomes of villagers and made public service provision too costly. To help families exit penury, local governments undertook massive relocation drives where poor people were moved to nearby towns and settled in new housing. Over 10 million people were shifted in this manner between 2016 and 2020, not all out of their own consent.

In India, moving people from villages to cities is not as straightforward. Urbanisation has been slow by global standards — while 31 per cent of people lived in cities in 2011, official estimates suggest that three in five people will continue living in villages as late as 2036. Forced relocation is out of the question. Rural inhabitants are fiercely protective of their land rights and India’s democratic framework doesn’t (and shouldn’t) allow for coercion.

Even within cities, governments have been unsuccessful in relocating slum-dwellers to subsidised housing. Rohini Pande, from Harvard University, in her study of one such resettlement programme in Gujarat, found that most people returned to their original slum homes or never took up government-provided housing due to joblessness or lack of social networks in the new locality.

In China, some movers were similarly sceptical of finding employment in towns and complained about having to abandon their land at throwaway prices. But heavy investment by the government in making their new homes “luxurious” is making them stay put for now.

Chinese bureaucrats also deserve credit for this achievement. Provincial and local officials were incentivised to eradicate poverty in their areas and given the stick if they failed. In several cases, they were not allowed to leave unless targets were met. Such laser-sharp incentives for bureaucrats are unusual anywhere in the world but certainly in India.

A simultaneous programme to temporarily employ college graduates to serve as village officials was both popular and impactful; economists from Hong Kong University and the University of California have found that these young lateral entrants to China’s local bureaucracy helped reduce corruption and achieve faster poverty eradication.

Historically most of the gains in poverty eradication came from the decollectivisation of agriculture unleashed by Deng Xiaoping in 1978 that incentivised farmers to produce more output. Rural poverty halved in five years. However, besides market-oriented reforms in agriculture, its egalitarian antecedents — land distribution is vastly more equal in China compared to India — also played a crucial role.

Beijing has now spent over $700 billion in five years on targeted poverty elimination. The Economist estimates that government expenditure per destitute household grew from 500 yuan in 2015 to 26,000 yuan by 2020. Clearly, the revenues afforded by a galloping $14 trillion economy have made this recent success possible, reiterating the oft-repeated point that poverty elimination in a stagnant economy is a chimaera.

Despite glowing successes, there are some concerns about the sustainability of China’s extreme penury elimination. Throwing subsidies at the poor might help them escape deprivation immediately but poverty being dynamic can resurface when external support is withdrawn.

The poverty line in China sits at around $2.30 per day (PPP, 2011 prices) and is 40 cents higher than the cut-off level for lower-income countries. The World Bank however recommends a $5.50 a day poverty line for upper-middle-income countries like China, based on which 17 per cent of the population was still poor in 2018.

Finally, claims of human rights violations in relocation drives cannot be neglected. Nevertheless, not all of its initiatives to eradicate poverty relied on coercion. Seemingly mundane activities like decentralised planning, bureaucratic reforms, and timeliness in collecting data helped. So did leveraging hundreds of billions of dollars to achieve an objective that became a national obsession — every relatively wealthy city, state-owned enterprise and government unit in the country was matched with a poor area to “lift up” the latter.

Rather than casually dismissing China’s achievements like some in the West have, we should instead learn from them and integrate several of their best ideas on poverty eradication with one of our own — progress by consent.

The writer is an economist from the University of Oxford and previously a researcher with the London-based Institute for Fiscal Studies