David Dollar and I have both posted recently about lessons from China for Africa. Here is one more view, from Joe Remenyi who recently served a stint as Research Director for the International Poverty Reduction Center in China (IPRCC). IPRCC was one of the main organizers of the Experience Sharing Program on Development between China and Africa which David and I wrote about last month.
I pretty much agree with Joe’s observations and conclusions. On the poverty reduction front, I would only add that if one uses a “cost-of-basic needs poverty line”, the reduction in incidence of poverty in China is even more dramatic, dropping from 64% of the population in 1981 to 6%-7% in 2007. We’ll be featuring this in the new World Bank Poverty Assessment that will be released soon.
As for Joe’s 10 lessons, I’d add one more – China’s approach to reform through learning by experimentation. China has taken a pragmatic and at the same time systematic approach to reform involving pilot-testing (sometimes with multiple pilots simultaneously taking alternative reform approaches in different parts of the country), evaluating the results, and then scaling up what seems to work and discarding what doesn’t. Thus the approach to reform has been as much about process as about substance.
But enough from me – let’s hear what Joe has to say:
China has long been regarded as an enigma. Being in China does nothing to disabuse one of this view. No matter where you find yourself or in what company, local, tourist or expatriate, it is not long before the question is posed: How has China done it? How does China do it? Can China continue to do it? When will the bubble burst?
It is only 30 years ago, 1978, to be precise, when China threw open the doors of the world’s biggest market to the unremitting winds of globalization; the start of China’s period of Opening and Reform. Official statistics indicate that in 1978 around 300 million rural Chinese lived a life well below the local poverty line of about $0.60/person/day. Lift this standard to the international poverty line of $1, and the number of poor in China in 1978 accounted for at least one-half if not three quarters of the population of China.
The transformation since 1978 is radical. In 2005, at the international poverty line of one dollar per person per day, the number of people below the poverty line in China was less than 10% of the population; somewhere between 100 and 130 million. This is still a very large number, but it is also very much smaller than it was in absolute or relative terms in 1978. By local Chinese standards, the number of rural poor has been reduced to less than 30 million; a ten-fold decrease in absolute poverty in only a generation. No country, poor or rich, can claim a poverty reduction record that comes anywhere near this achievement, especially not in such a short timeframe, despite massive flows of foreign aid and no lack of good intentions.
So, how has China done it? Do we understand enough about China’s experience to be able to answer this tantilising question? Back in May 2004 the participants in an international meeting of development assistance agencies, donors and developing country representatives decided that the answer to these two questions is so overwhelmingly positive, that a means had to be found to share the lessons of China’s success with other developing countries. The result is the International Poverty Reduction Centre in China, which was launched in May 2006, with financial support from the Government of China, the United Nations, the World Bank, the Asian Development Bank and major national donors like DFID from the UK. As the centre establishes itself and begins the process of using its platform of applied research, training programs and professional exchanges to allow developing countries to explore what is relevant for them in China’s experiences, bilateral donors and NGOs are also coming on board to tap the lode of policies, practices and templates that can be drawn from China’s record in poverty reduction.
China’s success does reveal the importance of several elements in pro-poor development that are essential if developing countries are to accelerate the rate at which they will achieve the Millennium Development Goals. The MDGs summarise eight basic indicators associated with poverty reduction. China has been especially successful in realizing the income and consumption MDG targets. So, how was this done? There will always be differences of opinion, especially as to the order of importance, but it can be argued, without being unnecessarily confident or arrogant, that there are ten replicable keys to China’s success. These ten are:
1. China has had a national commitment to poverty reduction, led from the very top by the policy declarations and resulting administrative reforms dictated by the State Council, that is integrated into procedures and policies at all levels of government in China, even down to the poorest village
2. Corrupt behaviour by some officials and profiteers notwithstanding; China has exploited with consummate skill the potential benefits available to it by garnering what economists call the ‘gains from trade’, by exporting the economic power of its comparative advantage in cheap labour, while protecting the natural monopoly that cheap labour afforded local producers of goods for domestic sale;
3. China has welcomed private capital inflow on a huge scale, facilitating not only the flows of investment finance to renew and remake local industries, but also associated technology transfer;
4. China’s gradual loosening of the shackles of ‘close-governance’, as exemplified by the replacement of collective agriculture and state enterprise based production with the ‘responsibility-system’, that shifted economic management from centralized top-down control over ‘commune’ and ‘unit’ based production to locally managed farms and market driven enterprises;
5. China’s aggressive privatization of state enterprises has not only liberated the state of the burden of chronic subsidies, but given a fillip to productivity by allowing market forces to determine final resource allocations;
6. China’s willingness to embrace fiscal reform has allowed government revenues to grow at rates well ahead of the growth of national income, providing the wherewithal to sustain double digit growth in government spending on education, health, and social overhead infrastructure, such as roads, electrification, communications and water;
7. The privatization of housing not only delivered a massive flow of revenue into government coffers, containing inflation, but also encouraged private sector demand for renovations, white goods and household spending on home improvements;
8. Liberalisation of labour markets across the whole of China removed many of the administrative obstacles to voluntary resettlement or relocation to areas where demand for labour offered wages above the own-wage of farming and village economic activity;
9. Gender sensitivity has removed many of the gender-based obstacles to women’s involvement in all aspects of socio-economic and political life, (including the constraints placed on a society by the persistence of a high fertility rate, that has declined massively in China), but especially improved gender equality in opportunities for education, health improvement and employment;
10. China’s embrace of bureaucratic and administrative reforms that have improved the participation of key stakeholders, such as poor villagers and ethnic minorities, in decision making that is of particular importance to their standard of living and quality of life.
The above list could easily be added to or re-ordered. Time will tell how seriously this list, which is mine alone, needs revision. In the meantime, it is left to developing countries that have not done as well as China in the push to reduce poverty and achieve ‘development’, to determine to what extent their progress could benefit from efforts to take a leaf or two from China’s book.
Prof Joe Remenyi
Director of Research
International Poverty Reduction Centre in China