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Public Disclosure Authorized ReportNo. 21105-CHA China OvercomingRuralPoverty Rural Development and Natural ResourcesUnit EastAsia and Pacific Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized October 18, 2000 JointReportof the LeadingGroupfor PovertyReduction,UNDP,andTheWorld Bank CURRENCY EQUIVALENTS (As of September 2000) Currency Name = Renminbi Currency Unit = Yuan (Y) Y 1.00 = $0.12 $1.00 = Y 8.3 FISCAL YEAR January I - December 31 WEIGHTSAND MEASURES Metric System I ha= 15 mu Vice President Country Director Acting Sector Director Task Team Leader Jemal-ud-din Kassum, EAP Yukon Huang, EACCF Mark D. Wilson, EASRD Alan Piazza, EASRD CONTENTS Abstract .............................. Preface ............................. Acknowledgments............................. Abbreviations and Acronyms ............................. Executive Summary.............................. A. The Remaining Challenge ............................. B. The Macroeconomic Context............................. C. Poverty Reduction Programs..................................... I. 2. 3. 4. TRENDS IN RURAL POVERTY IN THE 1990s A. Continued Reduction of Rural Poverty , , B. Location of the Poor...................................... C. Other Characteristics of the Poor THE MACROECONOMIC CONTEXT A. Introduction .. B. Macroeconomic Growth in China in the 1990s C. Trends in Employment.22 D. Inflation and Prices...................................... E. Fiscal Challenges in Poverty Reduction.32 F. Conclusions and Recommendations.36 v vii viii ix xi xi xiv xvi . . . ... I 3 .8 . . . 14 14 .15 POVERTY REDUCTION PROGRAMS IN CHINA . .38 A. Overview ....... B. Institutional Arrangements, Strategy and Funding.39 C. Targeting.43 D. Poverty Programs and Instruments .. E. A New Approach: Implementing Programs to Meet the Needs of the Poor. MEASURES TO INCREASE MOUNTAIN AREA PRODUCTIVITY .. A. Poverty in Mountain Areas .. B. Strategy for Mountain Area Economic Development .58 C. Recommendations for Improving Agriculture Program Effectiveness .59 D. Market Analysis and Development .. E. Environmental Protection.68 F. Education, Health and Nutrition .69 G. Poverty Reduction Through Labor Mobility . .71 H. Poverty Reduction Through Voluntary Resettlement . .71 30 38 44 52 57 57 67 Annexes Annex I Quantitative Trends.77 Annex 2 Macroeconomic Statistics.87 Annex 3 Improved Technology, Research, and Extension Needs for Mountain Agriculture .92 Annex 4 Participatory Poverty Assessments.109 Bibliography........ 115 ii Maps Map 1 Map 2 Map 3 Map 4 Incidence of Rural Poverty in China by Province, 1991 Incidence of Rural Poverty in China by Province, 1996 China: 592 Nationally Designated Poor Counties China: Poor Mountainous Region TABLES IN TEXT Table 1: Table 1.1: Table 1.2: Table 1.3: Table 2.1: Number of Rural Poor, 1990-98......................................................... xiii Number of Rural Poor, 1990-98.......................................................... 2 Incidence of Rural Poverty by Region and Province, 1988, 1989, 1991 and 1996.....4 Puding County (Guizhou) Township Disparity, 1992................................................. 8 Regional Patterns: Growth versus Change in Rural Poverty, Initial Level of Income and Initial Poverty Rate......................................................... 17 Table 2.2: The Importance of Agriculture for Poverty Reduction, 1991-96.19 Table 2.3: Percent of Rural Household Net Income Per Capita from Agriculture . 19 Table 2.4: Percent of Rural Household Net Income Per Capita from Wage Earnings and Transfers.20 Table 2.5: Growth in China's Labor Force.23 Table 2.6: Growth in Rural Enterprise Employment .24 Table 2.7: Estimates of Migrant Employment.25 Table 2.8: Official Data on Employment in Agriculture (millions) .26 Table 2.9: Estimated Change in Labor Use in Agriculture, 1989-1996.28 Table 2.10: Regional Growth Rates in the Labor Force and Off-farm Employment .. 29 Table 3.1: Central Government Poverty Reduction Funding (Y Million).42 Table 3.2: Yunnan Poverty Program Funding - Sectoral Spending (Yuan Million).47 FIGURES IN TEXT Figure 1: Figure 1.1: Figure 2.1: Figure 2.2: Figure 2.3: Figure 2.4: Figure 2.5: Figure 2.6: Figure 2.7: Figure 2.8: Number of Rural Poor, 1990-97. Number of Rural Poor, 1990-97 .2 Growth in GDP.15 The Relationship Between Per Capita GDP and Rural Poverty, 1990-97. Provincial Growth Rates versus Rates of Poverty Reduction .17 Wages as a Share of Income by Income Group, 1996.21 Indices of Agricultural Employment, 1989-=100.27 Annual Change in GDP and Prices .30 Annual Change in Farm Output, Input, and Rural Consumer Prices.31 Government Revenues and Expenditures as a Percent of GNP .32 xi 16 iii BOXES IN TEXT Box 2.1: Box 3.1: Box 4.1: Box 4.2: Box 4.3: Box 4.4: Fiscal Challenges in Three Poor Counties ................................................................ 34 Multisectoral Rural Development Poverty Reduction Projects ....................................53 Key Features of Agricultural Development in the Karst Areas ....................................60 Cunji Guihua - Working with Village Development Plans..........................................61 Typical Technology Improvements for Karst Areas.....................................................64 Impact of Project Approach - Analysis of Cashflows for Three Poor Households...... 66 Abstract v ABSTRACT China is widely recognizedfor its achievementsin reducing absolutepoverty since the adoption of a broad program of rural economic reforms beginning in 1978. Based on the government'saustere rural poverty line, official estimates indicate that poverty declined from more than 30 percent of the rural populationin 1978 to less than 5 percent by end-1998. The Chinesegovernmenthas a strong commitmentto povertyreduction,and the scale and funding of its povertyreductionprogram,and the sustaineddramatic reductionof absolutepovertyover the last twentyyears of reform,are exemplaryby any standards. Estimatesbased on an internationalpoverty line documentan equally steep decline in the incidenceof povertyin China. However,sincethe internationalstandardis somewhatless severe than China's official povertyline, it indicatesgreater numbers of poor in all years, and that by end-1998a much larger share of the rural population- about 11.5percent or some 106 million people-remained in poverty. While China's austerepoverty line was a useful standardwhen the incidenceof extreme poverty was greater, the internationalstandardhas now become a more appropriatemeasureto gauge the extent of povertyand guidethe government'spovertyreduction program in the next century. Available evidence also shows that an increasing share of the remaining rural poor are now concentrated in China's western provinces, and mostly within remote and mountainoustownships. The educational, health, and nutritional status of these remainingruralpoor is deplorable,and minoritypeoplesand the disabledare knownto represent highlydisproportionatesharesof the rural poor. Assistingthese remainingpoor requiresthe continuanceof the existing povertyreduction system. The key issue is not allocatingmore fundingfor povertyreduction,but is insteadmaking moreefficientand effectiveuse of availablefunding. This can be achievedthrougha number of measures. First, available poverty reduction funding should be targeted to all poor townships. The current system of targeting the nationally-designated592 poor counties results in the provision of very little assistancefor the half of the poor residing outside the designatedpoor counties,and to a very substantialleakageof assistanceto the non-poorwithin the poor counties. Second, financial monitoring and supervisionof the use of poverty reduction funds must be greatly strengthened. At present,the weak fiscal situation in China's poor areas motivateslocal governmentsto divert a large share of povertyreductionfunding to alternativeuses,and the very limited supervision of the use of available funding often leads to poor quality of poverty reduction works and activities. A number of governmentagencies provide funding and other support for poverty reduction, and the overall coordinationand accountabilityof this array of assistance is inadequate. Third, the effectivenessof funding to increase the productivityof upland agriculture(where the majority of China's poor attempt to eke out subsistencelevels of production) could be greatly enhanced through (a) adopting a multi-year "project-based" approach with greater community participationin design and implementation,(b) developing appropriateapplied agricultural technologies,and (c) completing realistic assessments of the market prospects for a wide array of niche crops which are now being planted extensively in China's upland areas. Fourth, greater efforts must be made to provide the poor with improved access to basic education,health, credit, water supply, and roads and other basic infrastructure. vi Abstract Fifth, past attempts to foster enterprise development in the poor areas through direct funding have had mixed results. Local government should instead focus on providing an enabling environment for rural enterprise development. Finally, China's poverty reduction work could be enhanced by forging stronger links with other government, academic and civic organizations. The next generation of poverty work could include contracting the implementation of some small projects to grass roots and civic organizations, which might enable the poverty program to try new and innovative approaches, and improve its outreach. Preface vii PREFACE China's "8-7" National Poverty Reduction Plan, which has been associated with sustained and significant reductions in the numbers of the extremely poor during the 1990s, will conclude at the end of 2000. The primary purposes of this report are to assess the state of poverty in China at the end of the 1990s, and to contribute to the determination of the most effective and efficient means of overcoming remaining absolute poverty in the new decade. The report is intended for all those interested in poverty reduction in China and, in particular, govemment decision-makers with responsibility for designing the next stages of the national poverty reduction program. Available evidence indicates that the majority of China's absolute poor are increasingly concentrated in remote and mountainous townships and villages in the western provinces. The report focuses heavily on these remaining rural poor, and to a lesser extent on the ethnic minority groups and the disabled people who are heavily overrepresented among the poor. At present, less than one percent of China's registered urban population have income levels below the absolute poverty line. Although reform of state-owned enterprise and other developments may result in the emergence of urban absolute poverty as a major issue in China, the report does not cover that very important issue. The report gives considerable attention to the macroeconomic context, and finds that the trends in poverty reduction in the 1990s have been at least partly determined by larger macroeconomic trends. The Asian financial crisis of the late-1990s dramatically confirmed that past achievements in poverty reduction could be quickly reversed. Although its effects on the poor in China were muted, it should be remembered that a future macroeconomic downturn could threaten China's success in poverty reduction. viii Acknowledgments ACKNOWLEDGMENTS This joint report was undertaken as a collaborative effort of the Leading Group for Poverty Reduction, United Nations Development Program, and The World Bank. The LGPR team was led by Su Guoxia, the UNDP team was led by Terry McKinley, and The World Bank team was led by Alan Piazza. The UNDP team, in collaboration with the International Labor Organization, has written an additional Supplement to this joint report. (The Supplement, which is available separately, provides a complete listing of the UNDP and ILO staff and consultants involved in the work of the joint report and the Supplement.) The report was written by Alan Piazza and Julia Li (East Asia and Pacific Region, Rural Development and Natural Resources Sector Unit), Enjiang Cheng, Claude Saint-Pierre, Terry Sicular, Bruce Trangmar, and Robert Weller (consultants). Major inputs were provided by Terry Mckinley (UNDP), Hu Tao, Kang Xiaoguang, Yang Qiulin, Zhao Yaqiao, and Richard Hardiman (UNDP consultants), Shaohua Chen and Martin Ravallion (Development Economics, Development Research Group), Li Guo (East Asia and Pacific Region, Rural Development and Natural Resources Sector Unit), Louise Beynon, Lisa Croll, and Zheng Baohua (DFID Consultants), and Lina Song and Wang Yihuan (The World Bank consultants). Additional inputs, comments, and review were provided by Halsey Beemer, Chen Xiaoping, Cheong Chup Lim, W. Hunter Colby, Yuri Dikhanov, Zafer Ecevit, He Jin, Paul Heytens, Janet Hohnen, Bert Keidel, Valerie Kozell, Kathie Krumm, Lena Lindberg, Lu Lei, Albert Park, Thomas Rawski, Arlene Reyes, Scott Rozelle, Mikiko Sasaki, Sari Soderstrom, Juergen Voegele, and Wu Guobao. The report is in large part based on findings of missions which visited Beijing, Anhui, Chongqing, Guangxi, Guizhou, Hunan, Qinghai, Sichuan and Yunnan during July 1998 and October/November 1998. These missions comprised a number of LGPR, UNDP and The World Bank staff and consultants, and benefited greatly from meetings and support from a number of staff, researchers, and officers of a variety of government agencies, donors, and domestic and international NGOs. In particular, the missions would like to gratefully acknowledge the time and generous assistance provided by the national, provincial, and lower level offices and various departments of the All China Women's Federation, China Disabled Persons' Federation, Chinese Academy of Agricultural Sciences, Chinese Academy of Sciences, LGPR's Foreign Capital Project Management Center, Ministry of Agriculture, Ministry of Science and Technology, Ministry of Water Resources, State Ethnic Affairs Commission, State Forestry Administration, State Statistical Bureau, CIMMYT, Ford Foundation, GTZ, IFAD, UNICEF, Winrock International, and WFP. The missions also benefited greatly from small group meetings with many poor farm households at the local level. Their assistance and participation is very much appreciated, and it is hoped that this report contributes to the further improvement of their wellbeing.