Albert Park
Shorenstein Reports on Contemporary East Asia
Number 17
April 1997
The 1996-97 Shorenstein Seminars on Contemporary East Asia presented a public lecture assessing the extent to which the Chinese government's official poverty programs have effectively targeted the poor and provided impetus for economic development in China's poor areas. The talk took place at the Institute of East Asian Studies on Thursday, April 10, 1997.
Albert Park is an Assistant Professor of Economics at the University of Michigan. He conducted his research on a USIS fellowship from the Center for Chinese Studies at UC Berkeley for collaborative research in the PRC.
During the decades following the Communist revolution, China saw itself as a success story among the countries of the developing world in meeting the basic needs of its people. Following the advent of economic reforms, however, the government has acknowledged continued poverty in many parts of the countryside and has implemented a number of programs to alleviate this poverty. In "Assessing China's War on Poverty," Albert Park along with coauthors Sangui Wang and Guobao Wu evaluate how well these efforts have succeeded in reaching the poor and promoting economic development since the mid-1980s.
Park's study focuses on the three main channels through which the central government has allocated targeted poverty investment funds: the subsidized loan program, the Food-for-Work program, and budgetary grants, which together account for 72 billion yuan in aid since 1986. Whereas antipoverty measures in Western industrialized countries often target individuals, all three of these programs are regionally targeted at the county level; as of 1997, some 592 of China's counties had been designated as "poor counties." Beginning in 1983 with a mere twenty-eight counties in Gansu and Ningxia, the process of choosing counties to target has been politically sensitive, as localities have much to gain from the "poor county" label.
The government used political criteria as well as socioeconomic measures in designating counties as poor. For instance, the government included many former Communist base areas and counties with a high concentration of ethnic minorities, even as it excluded other areas with lower levels of per capita income. Moreover, economic figures from a single year (1985) often determined a county's eligibility, thereby penalizing poor counties that happened to have had good harvests. Poverty measurement has been based on household surveys by the State Statistical Bureau which have been criticized for undersampling the poor population. Also, eligibility calculations have failed to take into account differences in food prices between regions.
The technique of designating entire counties for participation in the poverty programs and focusing on these counties alone has drawbacks as well as advantages. On the positive side, doing so can dramatically reduce administrative costs: there is no need for any program administration at all in nonparticipating counties and no need to collect detailed eligibility data at the level of the household. Also, county level governments are well-developed in China, making county-based programs easier to manage. On the negative side, however, excluding or including entire counties has meant that the poverty programs target individual poor households very imperfectly. Thus, for instance, affluent people living in counties designated as poor may undeservingly reap benefits from the aid. In 1995 the targeted counties had a total population of 200 million people, which is more than three times the estimated number of poor people in China, both inside and outside the targeted counties. Conversely, counties that are excluded by the programs also contain pockets of poverty. Indeed, some Western studies have suggested that no more than half of China's poor households live in officially designated "poor counties."
Park next discusses each of the three main antipoverty programs. The system of subsidized loans comprises a number of programs administered by different agencies; Park focuses on the main program under the interministerial Leading Group for Economic Development in Poor Areas. As in other developing countries, subsidized loans in China have generally failed to target the poor effectively; moreover, such loans are often not sustainable. Local governments at first disbursed the loans directly to poor households but in the 1990s began giving them to rural enterprises and other "intermediary"organizations which benefits poor households only indirectly if at all. Moreover, local officials have a strong incentive to divert this prized cheap credit to revenue-generating and other projects that do not benefit the poor. Estimates of the repayment rates on these loans appear dismal, in some places as low as 30 percent. Park believes that the original idea of providing small loans to individual poor households is a sound one; however, great attention must be paid to how the loans are disbursed and monitored. The success of "microfinance" programs in other parts of the developing world that effectively utilize local information to select projects and enforce repayment are valuable models, and China has recently begun similar pilot programs.
In the Food-for-Work (FFW) program, the central government distributes coupons for grain, cloth, or industrial goods to relevent bureaus in counties, which use them to fund construction of roads, waterworks, and agricultural infrastructure in poor areas. Because FFW is funded through local planning commissions rather than budget bureaus, this program may have fewer problems of fund diversion caused by the great scarcity of budgetary resources in poor areas Nonetheless, it too may not be targeting the poor population as well as it could be. Local governments may be using FFW funds to substitute for other money they would have spent on infrastructure anyway. Also, in some places FFW money from the central government is used to purchase material supplies, while local residents are pressed into labor service without pay as a form of taxation. In such cases, the project is imposing burdensome costs on the poor even as it provides economic benefits that are spread across the entire area. Park believes that FFW programs could improve targeting if they offered jobs to anyone willing to work for a relatively low wage, as is done in other countries like India. This way, only the needy participate, and only voluntarily.
China has long provided budgetary subsidies to poor regions; such subsidies are built into the fiscal relationship between the central and local governments. Judging the effectiveness of this program is difficult because budgetary data is not widely available. But these fiscal subsidies may also suffer from crowding out of other investment funds and, as with the subsidized loan program, diversion of funds toward preferred investments like revenue-generating enterprises that benefit the poor only indirectly.
Park argues that it is difficult to assess how much China's poverty investment programs have contributed significantly to reducing poverty. The overall number of poor in China has declined from 125 million in 1985 to 65 million in 1995, dropping at a slow rate in the late 1980s and more quickly in the first half of the 1990s. It is unclear, however, how much of this decrease can be attributed to the antipoverty programs themselves and how much stems from other factors, especially the robust economic growth of the country as a whole. While there is evidence that, in some areas, poor counties are growing faster than richer counties, a number of studies indicate that income inequality is rising in rural areas, "suggesting that the poor are falling further behind the rich." One study published in 1996 found that, all things being equal, living in an officially designated "poor county" increases household consumption significantly, but that this gain is offset by other factors.
"There should be great concerns about how well these programs are reaching all of China's poor due to issues related to poverty measurement, the nature of regional targeting, and the implementation of specific programs," Park concludes. On research trips, Park has been dismayed to hear anecdotal stories of antipoverty funds going to buy tractors for wealthy farmers; sometimes local leaders concede privately that little aid money ultimately reaches the poor.
Still, China stands out in comparison with other countries in terms of the high priority it has given to reducing poverty, and the number of rural poor has fallen steadily. There are many other programs and policies not examined by Park that also redistribute resources to poor areas. But China remains challenged by the difficulty of alleviating poverty in remote, resource-poor corners of its vast territory; moreover, new problems of urban poverty are emerging. More research is needed to help the government refine its weapons in the war on poverty.
Summarized by Benjamin Read.
