Since 1978, it is estimated that more than 200 million Chinese have escaped absolute poverty, as a result of Chinese government initiatives, bringing the share of China's total population living in absolute poverty to less than 10 percent,(1) This significant reduction of absolute poverty, from large numbers of poor spread widely across the countryside to pockets of poverty in remote resource-deprived areas, required a change in the government's agriculturally-focused approach to reducing poverty. Currently, however, the very limited agricultural resource base and lack of basic rural infrastructure, coupled with a deplorable health status and level of educational attainment, not only constrain the effectiveness of government poverty reduction programs in these areas, but also severely hamper single-sector agriculture and rural enterprise development interventions.
In order to guarantee a minimum safety net while improving the productivity of the poor over the long-term, revitalized social services should be integrated with improved agriculture and rural enterprise development programs. The most cost-effective large-scale poverty reduction approach may be to expand opportunities for out-migration of surplus labor from poor rural areas to more developed rural and urban areas, where there is stronger demand for unskilled workers.
Reforms to Eliminate Absolute Poverty
Rural economic reforms including the adoption of the production responsibility system, the dismantling of the commune system, agricultural product price increases and market liberalization were associated with dramatic rural economic growth from 1978 to 1985. A 1992 World Bank study, China: Strategies for Reducing Poverty in the 1990s (hereafter, referred to as Strategies or the World Bank Country Study)(2) concluded that broad participation in these rural economic reforms spurred the tremendous reduction in absolute poverty from roughly 270 million poor in 1978 to about 100 million in 1985, or from one-third to about one-tenth of the total rural population. Average rural per capita income grew at an average annual rate of 13 percent in real terms during this period, and it increased in total by more than 140 percent. The gross value of agricultural output increased by a total of 60 percent in real terms, at an average annual rate of 7 percent, more than double the total growth rate of the previous decade.
Perhaps most impressive was the increase in township and village enterprise (TVE) output and employment levels. TVEs are mostly labor-intensive enterprises engaged in manufacturing which include assembling everything from radios and phones to shoes; production of construction materials, such as gravel, wood, polished granite and other stone; and services, including transport construction and other activities. TVE output values appear to have increased fivefold in real terms from 1978 to 1985 (though part of this increase is explained by a broadening of the definition of TVE, beginning in 1984), and employment more than doubled from 28 to 70 million jobs. These trends in rural economic growth and incidence of absolute poverty are summarized in Table 1.
Table 1: Rural Economic Growth and Incidence of Absolute Poverty
1978 1985 1990 1995
Population (in millions)
Total 963 1,059 1,143 1,211
Rural 790 808 841 859
Incidence of Rural Absolute Poverty
in millions of people 260 96 97 70
% of Rural Population in Poverty 33% 12% 12% 8%
Average Real Per Capita Income
Rural (1978 Yuan)(*) 134 324 339 441
Real Sectoral Output Values
Agriculture (1978 = 100) 100 162 203 290
TVE (1978=100)(**) 100 506 1,184 6,834
Total Rural Laborers
in millions 306 371 420 450
in millions of people 28 70 93 129
(*) Nominal rural average per capita income deflated by the rural retail consumer price index. …