China has eradicated poverty. Really?

The People’s Republic wants to be a model in success against poverty. A state that is becoming a high-income country in terms of its national economy, but measures its progress against the standards that apply to poor countries.

A farmer in the remote province of Gansu takes a break from. An anti-poverty program run by Ifad is helping Linfang villagers improve crops with better irrigation techniques. © IFAD / Qilai Shen

The founding of the Chinese Communist Party (CCP) took place on a very small scale. Thirteen delegates representing nearly 60 members met in Shanghai in July 1921, but had to cut the meeting short after four days for fear of police spies. The founding of what has become the world’s second-largest party did not take place until a few days later – on a pleasure boat on a lake a hundred kilometers from Shanghai.

When the CCP celebrates its centennial in July 2021, the setting will be somewhat larger, and it will not have to fear police spies. The focus will be on the real or perceived successes of the party. The eradication of poverty in China will be hailed as a particularly great success in recent years. If the experts are not mistaken.

As early as the end of February, the state-controlled Chinese foreign broadcaster CGTN cheered that China had won a "complete victory" in the fight against extreme poverty. Nearly 100 million people from rural areas have been lifted out of poverty since 2012 – ten years earlier than called for by the UN’s 2030 Agenda, she says. For Chinese President Xi Jinping, the father of the anti-poverty campaign, this is "a miracle on earth that will go down in history".

But Xi Jinping is not yet satisfied with what has been achieved so far. Because, according to CGTN, by 2035 there is still a "fundamental modernization of agriculture and rural areas" to be achieved. The big long-term goal until 2050 is: "a powerful agricultural industry, beautiful landscapes and prosperous farmers" – all this under the heading "revitalization of rural areas".

The road to "zero poverty"

When the Chinese government talks about "poverty," it means extreme rural poverty, not urban poverty. Thus, any Chinese living in rural areas and earning less than about $2.30 per day is considered poor. In addition to the level of income, housing conditions, health care and educational opportunities are also included, as well as the satisfaction of basic needs such as food or clothing. At $2.30, China is slightly above the World Bank-defined international poverty line of $1.90 per day.

According to the national definition, more than 770 million Chinese were still living below the poverty line in 1990 – about two-thirds of all inhabitants. By 2012, when President Xi took office, that number had already fallen to around 100 million, and by 2019 it had dropped to 5.5 million. China was well on its way to achieving the goal of "zero poverty by 2020," as set by Xi. In this respect, the current success story from the Chinese government and state media sounds quite plausible. The World Bank also notes approvingly that in China, "more than 850 million people have escaped poverty since the economic reforms of 1978".

Women reloading potatoes in the market of Dongxiang district. Potatoes are their main source of income, along with sheep. An anti-poverty program should help with marketing. © IFAD / Qilai Shen

The reduction of poverty in China has been accompanied by a long period of high economic growth, but this alone does not lead to falling poverty. Public intervention is needed to make growth more inclusive. Beijing moved rural areas into the focus of government poverty programs. Hundreds of thousands of officials and other aides had gone door-to-door to determine who could be considered poor – measured by income, housing situation, lack of health insurance, or whether there were school dropouts. This was often followed by support in the form of cheap or interest-free loans, the assumption of salary payments, the transfer of livestock and much more. Companies have also been subsidized and huge investments have been made in infrastructure. Roads, highways, tunnels, bridges and more have been funded by the anti-poverty campaign. The government relocated millions of people from the regions to housing developments, sometimes in cities, sometimes in or near their old homes. These moves have not always been voluntary.

Primary school children in Liushu in 2006. In the catchment area of the city, which now has access to a high-speed train, livestock is the main source of income. © IFAD / Qilai Shen

Today, almost every child in China completes the required period of schooling, and according to UN figures, infant mortality in rural regions has also fallen sharply. These and other Chinese successes in poverty reduction contributed to about 70 percent of the reduction in global poverty, according to the World Bank representative in China.

A high price

Success, however, has also come at a high price. Estimates of the cost of the anti-poverty campaign vary widely, depending on what is included. According to the Washington Post (25.02.21), the government reported that it had spent 248 billion euros. dollars, the New York Times (31.12.20), on the other hand, talks about 700 billion. dollars in the past five years alone. The World Bank representative also points to high costs: "We are fairly certain that China’s overcoming of poverty in rural areas has been successful – but given the resources used, we are less certain that it has been sustainable or cost-effective."

So it is highly uncertain whether the anti-poverty campaign was sustainable, whether the people who escaped poverty with government support during the campaign will remain beyond the poverty line. This will only become apparent in the coming years. For the people as well as for the many businesses in rural areas that receive large amounts of state aid and have therefore survived. It seems more likely that fighting absolute poverty in these regions will become a permanent task for the government.

Questionable ways of counting

The picture would also be different if the government followed the international standard of the World Bank. China uses self-defined income poverty line of about $2.30 a day. The World Bank actually draws the absolute poverty line at $1.90 per day – but for low-income countries (LICs). For upper middle-income countries (UMIC), and that includes emerging China, she recommends a poverty line of $5.50. If these are applied, that leaves 13 percent, or about 200 million Chinese, underneath.

Thus, the People’s Republic, which to this day is for many the Measure of successful poverty reduction is on the path to becoming a high-income country, but measures this progress against the standard for the world’s poorest countries. This does not show strength and will find imitators, experts expect. If the supposed "flagship" country lowers standards, that will inevitably lower ambitions in other countries.

It is also worth noting that China uses average incomes when removing certain rural areas from the list of absolute poverty areas. This means that some families and communities are above this threshold, but others live below these incomes; however, the latter do not appear in government statistics. Moreover, the figures say nothing about poverty in large cities, where wages are much higher than in rural areas, but so are expenses for food and rent. "The rudimentary social assistance system currently supports about 15 million people in urban areas. But these are by no means all those in need of assistance." (NZZ, 26.2.21)

The mountainous southern province of Gansu is rife with poverty. Local farmers work a terraced field. © IFAD / Qilai Shen

In fact, as recently as May 2020, Chinese Premier Le Kequiang said that about 600 million Chinese citizens, nearly 40 percent of the total population, would have to live on about $140 per month. And he added that this is not even enough to pay the rent for a room in the city.

Overall, China’s poverty reduction programs over the past decade have hardly tackled the root causes of problems that particularly affect the poor, such as health care costs or other gaps in the social safety net. Nor did the programs focus on the extreme inequality between urban catchment areas and rural regions (see box). But that would have been necessary if the "complete victory" against poverty was to last.

Popular politics in the countryside

However, these weaknesses in anti-poverty policy have as little impact on the perception of state and party performance in rural areas as all the things that Western media rightly criticize, such as the new security laws for Hong Kong, the re-education camps in Xinjiang or the growing state surveillance. On the one hand, this is due to the strict censorship, but also to our own experiences. For many rural Chinese, Xinjiang and Hong Kong are far away and irrelevant to their lives.

And so, at the 100-year celebration of the Chinese Communist Party, the Chinese will certainly hear many touching and grateful statements from people who were able to escape poverty, at least for a short time. This will further strengthen the party’s legitimacy and Xi’s reputation. But the real anti-poverty policy has yet to begin. Perhaps 13 delegates will soon be found who are confident enough to represent more than 60 party members. However, they may very quickly have to deal with police informers.

Economist Branko Milanovic, a world-renowned inequality researcher, calls inequality the "Achilles heel of the Chinese system" in an article published in early 2021 for Foreign Affairs magazine. It contradicts the socialist principles verbally upheld by the party and undermines the tacit agreement between the rulers and the ruled. The reason for the high degree of inequality is not only rapid economic growth and the accompanying rapid urbanization, but also peculiarities of the political and economic system, which, for example, have fostered the significant disparities between the provinces and between rural and urban areas. China’s Gini coefficient (a measure of unequal income distribution that ranges from 0 to 1) is approximately 0.47 (U.S.: about 0.47). 0.41, Germany 2018: 0.29); inequality in China is thus higher than in the U.S. and considerably higher than in Germany. The gap between urban and rural incomes, in particular, is very high. One could almost get the idea that we are dealing with two different countries, Milanovic said.

China’s inequality has not only structural, but also political reasons. Both rampant corruption – which is especially lucrative for those near large sums of money that can be embezzled – and membership in the CCP, which can secure very large incomes, are drivers of inequality, he said. Milanovic does attest to Xi Jinping’s seriousness in his anti-corruption campaigns, but predicts considerably greater problems in future campaigns. This is because political and economic power are beginning to merge in China to form a hybrid political-economic elite that has no interest in fighting corruption and is almost impossible to dissolve once it has formed and become firmly established.

The strong development of the private sector is also giving rise to new social classes in China, he said. In order to include them, he said, the government of the one-party state invites them to political participation through party membership. But this creates an upper class with both political and economic power, separated from the rest of society and also from the mass of CCP members. Without free elections, such power could only be controlled by a superior independent center. Milanovic: "But there is an ultimate power that resides in a narrow circle of top CCP officials and government officials who are loyal to their backgrounds. This autocratic power can curb the elite’s immoderate pursuit of financial gain and perhaps even their decadence. China has a choice between two visions: Oligarchy or autocracy."

This is not a good alternative for the poor in China, whether in rural or urban areas.

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