Remarkable progress, remaining vulnerability among China's poor

China's share of population living below the poverty line declined from 65 percent at the beginning of economic reform in 1981 to 4 percent in 2007.

At the height of the recent boom the U.S. household savings rate dropped to zero: the average American family saved nothing from its annual income of more than $38,000 per person. In China, by contrast, poor rural families earning less than $200 per person save 18 percent of their meager income. This is one of the striking findings of the World Bank poverty assessment released today.

The poverty study uses a wealth of household survey and village-level data to tell a fascinating story of progress and vulnerability. The progress is remarkable: the share of the population living below the World Bank's consumption poverty line for China declined from 65 percent at the beginning of economic reform (1981) to 4 percent in 2007. The pace of poverty reduction varied over these 26 years. One of the periods of most rapid poverty reduction has been the boom time since China joined the World Trade Organization. Poverty declined from 16 percent in 2001 to 4 percent in just six years.

But the analysis also shows remaining vulnerability. A data-set that follows households over three years finds that while the poverty rate in each year is relatively low, over the three years nearly one-third of rural households were poor in one of the years. It used to be the case that there were large concentrations of chronically poor people in particular locations. Much of China's poverty reduction effort has been aimed at helping those locations grow through infrastructure investments. These efforts have been successful, but the remaining poor are now quite dispersed. More than half of the poor now do not live in officially designated poor villages. So, while helping poor villages remains important, that work needs to be supplemented by programs that reach the poor households living elsewhere (hence the report's title: "From poor areas to poor people: China's evolving poverty reduction agenda").

Households move in and out of poverty primarily because of different kinds of shocks: poor weather and crops; sickness or injury; loss of job for the migrant worker in the family. Protecting against this kind of vulnerability requires strengthened social protection. The international team that wrote this report has been working together with the Chinese statistical bureau and the poverty alleviation leading group for years, and many of the findings have already influenced policy. The report documents how in recent years China has introduced an impressive array of programs to address vulnerability: medical assistance for the rural poor, rural medical cooperative scheme, free basic education, and minimum income support in urban and rural areas (dibao).

There is considerable scope to improve and expand these programs. While this analysis was done before the global economic crisis hit, the crisis makes the agenda all the more important. As estimated 20 million migrant workers have lost their jobs, reducing the important remittances that they send to family in the countryside. Most of those unemployed will remain in cities looking for work. Thus, it is important to ensure that they are covered by the urban safety net. The report makes practical recommendations for expanding social protection: the price tag is less than 1 percent of GDP – a small amount compared to the country's massive stimulus spending on infrastructure.

Fully funding the safety net will reduce vulnerability and protect China's impressive gains in poverty reduction. It is also encourages transition to a growth path less dependent on exports and investment and more reliant on consumption and domestic needs. If poor rural households feel more secure and spend more of their income, this will be good for their welfare and also help China's adjustment to a sustainable growth path.