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Opinion
WB: China's National Poverty Line Is Higher Than Its New Standard
By Jiao Meng | Web Exclusive

In purchasing-power parity (PPP)-adjusted terms, China's latest national poverty line of 2,300 yuan ($360) per year is higher than the $1.90 a day line that the World Bank uses for global poverty monitoring, said Bert Hofman, Country Director for China, Mongolia and Korea of the World Bank, during an exclusive interview with chinagate.cn. Excerpts as follow:

Chinagate.cn: China has helped 439 million people get out of poverty from 1990 to 2011. How would you evaluate this progress?

 

Bert Hofman: China's tremendous success in reducing extreme poverty is widely recognized. The new global poverty estimates recently released by the World Bank using an updated international poverty line of $1.90 a day in 2011 PPP shows that the percentage of the population in China living below this international poverty line fell from 88 percent in 1981 to 6.5 percent in 2012, and the number of poor fell from 878 million to 87 million during this period.

Thus, China's success is even larger than previously thought. In the past 30 years, the 790 million drop in the number of poor in China accounts for over 70 percent of the total reduction in the developing world as a whole, indeed a truly remarkable achievement.

As you mentioned, the international poverty line has been lifted to 1.9 dollar per day; while China's latest poverty line is 2,300 yuan ($360) per year. How to understand the differences between these two standards? If adopting this new standard, there would be 250 million poor populations in China. What do you think is the biggest obstacle for China to help them get out of poverty?

As differences in the cost of living across the world evolve, the global poverty line is periodically updated using new data to reflect these changes. Earlier this month, the World Bank updated its international poverty line to $1.90 a day in 2011 PPP, incorporating new information on differences in the cost of living across countries.

This updated line preserves the real purchasing power of the previous line (of $1.25 a day in 2005 prices) in the world's poorest countries. Using this updated poverty line in conjunction with new country-level data on living standards, the World Bank projects that global poverty will have fallen from 902 million people in 2012, or 12.8 percent of the global population, to 702 million people in 2015 (9.6 per cent of the world's population), giving fresh evidence that a quarter-century-long sustained reduction in poverty is moving the world closer to the historic goal of ending poverty by 2030.

It is important to note that the global poverty line is used primarily to track global extreme poverty, and to measure progress on global goals set by the World Bank, the United Nations, and other development partners. A country's national poverty line is far more appropriate for country-specific analysis, underpinning policy dialogue or targeting programs to reach the poorest.

In PPP-adjusted terms, China's latest national poverty line of 2,300 yuan ($360) is higher than the $1.90 a day line that the World Bank uses for global poverty monitoring. This is not surprising, given that China is now an upper-middle income country while the World Bank's international poverty line is anchored to the poverty lines of the world's poorest countries.

Despite its tremendous success in reducing poverty noted earlier, China faces significant challenges in reducing remaining poverty. Based on its more frugal $1.90 a day poverty line, the World Bank estimates that the number of poor people in China is still the third largest in the world, with projections indicating that about 7 percent of world's poor live in China in 2015.

As poverty has decreased across the country, the remaining poor are harder to reach as they are less concentrated in a specific location and are more dispersed in remote and inaccessible areas. Most of China's remaining absolute poor are rural inhabitants, and about 80 percent of these poor reside in the western and central provinces. The scale of rural to urban migration is large and migration has helped to reduce poverty, particularly in rural areas. But many of the remaining poor are less able to migrate and hence poverty alleviation in rural areas remains important. We also know of the widening rural-urban income gap and the increasing income inequality within both rural and urban areas.

In coming years, key challenges for China will likely include:

(i) Living conditions of migrants in cities, due to their difficulties in accessing labor market opportunities and welfare services as a result of the hukou  system;

(ii) As a by-product of migration, the large number of left behind elderly and children whose living conditions may also deteriorate despite remittances;

(iii) Access to affordable health and education, to prevent the spread of cases of families becoming poor or returning to poverty as a result of the burden of healthcare and education costs;

(iv) Land-related issues regarding landlessness or ecologically fragile zones and its link to the population in poverty.

In addition, the abundant academic literature on inequality in China identifies three main areas meriting attention: (i) regional development and the urban-rural divide; (ii) the functioning of labor markets; and (iii) new sources of inequality due to growing wellbeing and wealth inequality.

China and the World Bank have close cooperation in poverty reduction and related fields for over 30 years. How would you evaluate this relationship?

The World Bank has had the privilege to work with China for 35 years. The World Bank's program has been based on an integrated cycle of analysis, project implementation, and continuous dialogue and feedback into policy process. The partnership has spanned a broad range of China's development agenda and has included agriculture and rural development, infrastructure development, urban development, transport, education, health, environment and targeted poverty interventions.

I believe the success of the partnership has been that the Bank has been well attuned to China's priorities and development program, and its lending program evolved with the country's needs as they changed over time. A second ingredient for success is the long term nature of our engagement with China.

The first project we financed in China signifies this very well: It was a project to upgrade the quality of China's universities in 1981. The reason behind this was that after the turbulent year that China had gone through it was critical to rebuild the universities that would educate the country's future leaders--much in the spirit of Deng Xiaoping who had called for emancipation of the minds of Chinese people.

As for poverty, the World Bank assisted the Chinese Government in developing its national poverty reduction strategy through major studies on rural poverty including China: Reducing Poverty in the 1990s (1992) , which recommended integrated multi-sectoral package of measures to assist the rural poor, and China: Overcoming Rural Poverty (2002) , which recommended a greater focus on participation. A comprehensive Poverty Assessment From Poor Areas to Poor People: China's Evolving Poverty Reduction Agenda  was completed in 2008.

In collaboration with the State Council's Leading Group of Poverty Alleviation and Development, the World Bank has supported six direct poverty reduction projects in China since 1995, namely, the Southwest Poverty Reduction Project (1995-2002); the Qinba Mountains Poverty Reduction (1997-2004); the Poor Rural Communities Development Project (2005-2011); the Sustainable Development in Poor Rural Areas Project (2010-2015); and the Poverty Alleviation and Agriculture-Based Industry Pilot and Demonstration in Poor Areas Project (2015-2021). Through these project, the World Bank has sought to introduce global knowledge, good practices and innovations into China's national poverty reduction program.

Last month, the new Sustainable Development Goals (SDGs) were adopted by the UN summit. Under this new structure, what kinds of adjustments of China and the World Bank do you think should make to fulfill these ambitious targets? What kind of role will China play to realize the global targets?

At the United Nations General Assembly in New York that took place from September 25-27, world leaders endorsed new Sustainable Development Goals, an ambitious agenda that aims to end poverty, promote prosperity, and to protect the environment. The first of these new goals is to eradicate extreme poverty by 2030.

Despite its great success with poverty reduction, China, on account of its large size, still has a vital role to play in reaching the global goal of eradicating poverty. China has an unmatched record of poverty reduction over the past three and a half decades, which other developing countries can learn much from. Indeed, President Xi Jinping led a forum on South-South learning, which was also attended by World Bank President Jim Kim. We believe that learning from China's success will be an increasingly important ingredient of our partnership going forward.

In addition, developments in China, the world's second largest economy, and one that is increasingly open and market based, have a major bearing in the years ahead on both the regional as well as the global economy. So growth and poverty alleviation in other countries will in part be linked to China's economic health.

The developing world's infrastructure needs are large, with emerging markets and low-income countries facing an annual infrastructure spending gap of $1 trillion to 1.5 trillion, for which the China-led Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) can play a very important role. With strong environment, labor and procurement standards, the AIIB and NDB can join other development banks in addressing these huge infrastructure needs that are critical to ending poverty, reducing inequalities, and boosting shared prosperity.

The World Bank will continue to work closely with China in these ambitious endeavors by bringing international knowledge and experiences to help China innovate and adapt international best practices to its own context and environment.

(Chinagate.cn October 16, 2015)

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