Social Development and Poverty – Page 5 – Regional Knowledge Sharing Initiative

What Can ASEAN Learn from the People’s Republic of China’s Poverty Reduction Strategy?

The experience of the People’s Republic of China shows that beyond economic growth, an adaptive and cooperative approach can help reduce poverty even at hard to reach places.

Tweet

Introduction The People’s Republic of China (PRC) has experienced unprecedented economic growth and poverty reduction since 1978. Ravallion and Chen (2007)¹, among many other researchers, concluded such transformation was largely due to agriculture growth, especially in the early stage of PRC’s reform era until the mid-1980s. Amid accelerated industrialization and urbanization, the PRC government launched poverty reduction programs for its under-developed western regions in the mid-1980s and rolled out national strategies for poverty alleviation since mid-1990s. When the country introduced an urban-rural coordination strategy in the new century, it also extended social protection schemes from the urban to rural areas in 2007. These programs have offset the moderating effects of slower economic growth in alleviating poverty and contain key lessons for countries considering poverty reduction strategies.

This article is adapted from an unpublished study, “Agricultural Development and Transformation-Led Growth and Poverty Reduction in the PRC: Key experiences and lessons to share with ASEAN Countries.”

Analysis

The PRC and Association of Southeast Asian Nations (ASEAN) member states differ in many respects, but also share similar experiences. Rapid economic growth, as well as social and economic transformations, have helped many to reduce poverty, but they also face similar challenges in rising inequality and lack of growth in the agricultural sector. Lessons from the PRC can guide the design and implementation of poverty reduction strategies in ASEAN countries.

Political and social stability, as well as a consistent development strategy, are important conditions for poverty reduction. Experiences from Cambodia, PRC, Indonesia, Malaysia, and Viet Nam suggest that poverty reduction benefits from long-term systematic government interventions. Improved poverty reduction performance boosts ruling parties’ legitimacy which in turn contributes to a stable political system necessary for implementing long-term development initiatives.

Economic growth is fundamental to poverty reduction. There are two main approaches to poverty reduction: investments in businesses that “trickle-down” to benefit all levels of society, or income redistribution schemes through government interventions. Experiences in the PRC suggest that economic growth can “trickle-down” and reduce poverty if growth occurs in sectors that benefit the poor. In addition, economic growth as a poverty reduction tool is most effective in countries that have relatively equal economic and social situations. As inequality increases, government interventions are needed to ensure the poor benefit from economic growth and to protect those left behind.

Agriculture is indispensable for achieving sustained rural poverty reduction. Agriculture is a primary driver for reducing rural poverty, particularly in countries where most of the population live in rural areas and engage in agriculture-based activities. Improving productivity in the agricultural sector through improved infrastructure, better access to markets, and availability of improved seed varieties and cultivation technologies directly reduce poverty in rural areas. In countries with limited land resources, raising productivity of existing fields is a key method for promoting growth in the sector.

Figure 1: Annual GDP Growth Rate, Annual Agricultural Growth Rate, and Poverty Incidence at National Absolute Poverty Line in the People’s Republic of China

Industrialization can be an effective pathway out of rural poverty. Non-agricultural employment can reduce poverty in rural areas by offering workers another source of income especially during periods of low employment in the cultivation cycle. Rural industrialization becomes increasingly important as agricultural activities decline in relative importance in the wider economy while also increasing rural laborers’ resilience to shocks by diversifying incomes. By offering employment opportunities in small and medium cities, non-agricultural rural enterprises can help slow the expansion of large cities that may not be able to accommodate large influxes of migrant workers.

Targeted governmental interventions can reduce poverty in places where economic growth cannot reach. PRC’s experience suggests that pro-poor interventions can be successful when the trickle-down effects of economic growth weaken and poverty rate is relatively low. The PRC government has channeled diverse resources to support targeted interventions that aim to address the country’s multi-dimensional extreme poverty. Targeted interventions can be industry-based, educational, and cash-transfer social protection approaches. Their selection will depend critically on the accurate identification of the poor, and diagnosis of poverty root causes.

Social protection programs for poverty reduction are more efficient when multi-dimensional poverty increases. In initial stages of economic growth, financial and organizational resources are often limited, thus, social protection programs can hardly be implemented. As growth continues, redistributing income becomes more feasible. And as poverty becomes multi-dimensional, it is increasingly difficult to overcome it merely through economic growth. While many rural families are not poor by the measure of income, they may still lack adequate education or health care that could help sever the inter-generational transmission of poverty. The PRC’s anti-poverty policy that shifts from a developmental approach to an approach combining development and social protection can thus shed some light on when to introduce and how to design pro-poor social protection programs.

Implications

Three approaches to reducing poverty are suggested, namely,

Identify a strategy to eliminate rural absolute poor through a rapid economic transformation;
Develop rural areas; and
Adopt a cooperative approach to understand and address multi-dimensional poverty.

ASEAN countries’ high economic growth rates have been underpinned by robust foreign investments leading to strong employment gains in the manufacturing sector that help countries to reduce poverty. As many ASEAN countries continue to depend on agriculture, there is scope for improvements that will positively affect the rural poor. (World Development Indicators show 7 out of 10 ASEAN member countries have an agriculture sector that accounts for more than 20% of its total employment, and 5 countries have an over 10% agricultural GDP share in 2017). PRC’s experience shows boosting productivity, promoting the rural industry, and developing small cities are key poverty reduction initiatives.

On the other hand, ASEAN can also share useful lessons with the PRC. In particular, Malaysia’s, Singapore’s, and Thailand’s experiences in urban poverty reduction, social protection programs, and rural tourism can help the PRC design and implement better poverty reduction and rural transformation initiatives.

¹ M. Ravallion, and S, Chen. 2007. China’s (uneven) Progress Against Poverty. Journal of Development Economics. 82(1). 1– 42.

References

X. Li. 2018. Growth Transformation and Poverty in the PRC and ASEAN. Presentation at 12th ASEAN-China Forum on Social Development and Poverty Reduction. Manila. 27-29 June.

National Anti-Poverty Commission, the Philippines. 2018. Philippine Experience on Poverty Reduction. Presentation at the 12th ASEAN-China Forum on Social Development and Poverty Reduction. Manila. 27-29 June.

M. Ravallion, and S. Chen. 2007. China’s (uneven) Progress Against Poverty. Journal of Development Economics. 82(1). 1– 42.

Authors

Xiaoyun Li

Distinguished Professor at College of Humanities and Development Studies of China Agricultural University

Hsiao Chink Tang

Senior Economist, East Asia Department, Asian Development Bank

Jin Xu

Associate Professor and Assistant Dean, China Institute for South–South Cooperation in Agriculture

This blog is reproduced from Development Asia.

What the People’s Republic of China Can Learn from Japan on Population Aging

An aging population can have a dramatic impact on a country’s economy but Japan has shown that innovative approaches and policies can help mitigate the effects.

The population of the People’s Republic of China is aging rapidly, sparking concerns that the country may grow old before it becomes rich.

The common dictum that “demographics is destiny” captures the notion that an aging population necessarily inflicts a lot of damage on the economy. Japan is often cited as an example by those who subscribe to this view.

However, as the Japanese experience suggests, there is plenty of scope for the People’s Republic of China to change its demographic fate for the better. (See chart)

One common denominator in the demographic trajectory of the two Asian giants is the sheer speed of population aging.

It took France 114 years and the United States 65 years for the population share aged 65 and older to rise from 7% to 14%. The projected corresponding figure for the People’s Republic of China is 25 years, a similar trajectory to Japan, whose elderly population share shot up from 7% to 14% between 1990 and 2015.

In the past, a relatively young population was a big boon to the People’s Republic of China’s remarkable sustained rapid growth. More specifically, the country’s large and growing labor force delivered an ample supply of workers to the factories that transformed the it into the “Workshop of the World.”

Going forward, however, the demographic dividend that contributed to economic growth over the past 40 years is turning into a demographic tax that is hampering growth.

Simply put, the share of workers in the population is falling while the share of economically inactive individuals is rising. According to ADB research, favorable demographics added 1.2 percentage points to the People’s Republic of China’s average annual GDP growth in 1981-2010 but are projected to subtract 0.3 percentage points in 2011-2030.

Lessons for how a country can adapt to aging population

Tweet

Economists who worry about the economic impact of the People’s Republic of China’s demographic transition look for cues from Japan’s experience.

In the immediate postwar period, Japan grew rapidly on a sustained basis, much as the People’s Republic of China did later following the market reforms of 1978.

However, since an asset price bubble burst in late 1991 the Japanese economy has been in a prolonged slowdown while its population has aged rapidly.

Not surprisingly, aging is often identified as a contributing factor to the economy’s problems. Nevertheless, it is more accurate to attribute this to difficulties in sufficiently adapting to aging, rather than to aging per se.

To compensate for the slower expansion or reduction of the workforce, each worker in a rapidly aging society must become more productive. Aging can induce technological change that can boost workers’ productivity. In this context, Japan has long been a global leader in robotic innovation and adoption.

Structural reforms—such as slashing business regulations, liberalizing the labor market and agricultural sector, and cutting corporate taxes—could also give a big boost to productivity.

Another strategy to offset a decline in working-age population is to tap new sources of labor, such as women, older workers, and foreign workers. Japan is working on each of these areas but so far without significant progress.

Singapore offers a potential model on immigration. Though like Japan it has seen a sharp decline in fertility, the city-state continues to enjoy solid population growth due to more liberal immigration policies.

The key takeaway is that structural reform is indispensable to avoid a demographic tax from population aging. In the People’s Republic of China, these structural reforms should include the financial sector, mainly improving the efficiency of resource allocation and state-owned enterprises.

Encouraging investment in robotics and other technologies that boost productivity can also mitigate the economic effects of population aging.

Demographics are a powerful headwind, but policy makers in the People’s Republic of China have the tools at their disposal to turn this challenge into an opportunity. Above all, the country must be bold enough to undertake painful but necessary productivity-enhancing structural reforms as well as fully embrace new productivity-enhancing technologies.