China Declares Victory Over Extreme Poverty, But Inequality Rises

On Monday, November 23 in Guiyang, the capital of Guizhou province, local officials quietly announced an extraordinary accomplishment: the end of extreme poverty in China. At The Wall Street Journal, James T. Areddy reported on the announcement and the significant barriers that still remain to truly ending poverty in China:

Nine Chinese counties, all in the mountainous province of Guizhou, have recently been certified as poverty-free, officials said. They were the last counties to make it over a threshold China has set based on a matrix of indicators including income, health, education, shelter and other human needs.

[…] Despite setbacks associated with the coronavirus pandemic, which in China like elsewhere disproportionately hit lower-income groups, Mr. Xi has repeated a determination that the poverty elimination goal would be achieved, making it a foregone conclusion that authorities would declare success before year-end. The People’s Daily earlier this year said poverty had plagued China for thousands of years so eliminating it can be considered “a Chinese miracle in human history.”

[…] A report this year from former World Bank officials said that if a uniform standard of $5.50 a day in income, or around $2,000 a year, were applied, some 373 million or about 27% of the population would be considered in poverty. “Under these rates, poverty in China is still sizable and merits renewed efforts as well as further refinement of the country’s poverty policies, strategies and programs,” the report said. [Source]

A leaked media directive issued on March 2 and later obtained by CDT illustrates official determination to keep the epidemic from derailing poverty relief goals:

2020 is the year of the final, decisive assault to eliminate poverty. Promptly block, find, and delete related negative content, take strict precautions against backflow of harmful information from abroad, and strictly manage “low level red,” “high level black,” and comments that deliberately stir up extreme public sentiment. Firmly grasp orientation guidance of hotspots, be strict in checks and audits, prevent specific issues from dominating the whole topic or local problems from overwhelming the overall picture. Prevent disorderly application of “poverty reduction tags” from interfering with the overall attack on poverty. In general, do not conduct public investigative reports on sensitive issues involving poverty or on problems for whose solution conditions are not currently in place. Strengthen content checks and management of posts and comments. (March 2, 2020) [Chinese]

Read more on this and other directives from the same day in CDT’s Minitrue Diary collection, an almost daily series of instructions covering the first ten weeks of 2020.

First proposed in 2014 and then enshrined in China’s 13th Five-Year Plan, “Precision Poverty Alleviation” was Xi Jinping’s signature campaign to end poverty in rural China by 2020. Terry Sicular’s latest report in China Leadership Monitor offered a comprehensive overview of the program, its methods, and its future. After building a national registry of poor households, China adopted campaign-style governance to achieve the goal of raising annual rural incomes above 4,000 yuan, approximately $600. Local governments were tasked with organizing employment drives, funding environmental projects, and even resettling rural residents, among other policies. The program, according to Sicular, was largely successful. But in her conclusion, Sicular noted that “[m]any households remain vulnerable to poverty, and, furthermore, the current low, unidimensional, rural poverty line no longer reflects what it means to be poor in China’s rapidly evolving society.”

The coronavirus pandemic and torrential flooding across China this summer saw families plunged back into poverty after ostensibly escaping it. The behavior of local officials is also sometimes suspect. John Donaldson, an expert on poverty in China, said “I was in poor villages at the end of 2019 and what I saw was … some things that were going great and other things that were utter disasters, that were worse than nothing,” according to CNN. At The Los Angeles Times, Alice Su visited a family left behind by a local resettlement drive while examining the gaps in China’s poverty alleviation campaign:

Yang’s family had considered such a move [to Xinjiang] 10 years ago, when the resettlement policies first began. They’d visited to see new land the government had promised for a subsidized price. They decided it was too much of a change, but upon return, they found that all but two of the family’s hukous, the household registrations that tie every Chinese citizen to a city or rural area, had been transferred to Xinjiang. That meant they were now classified as Xinjiang residents and would be able to access only government social programs there.

[…] “My mother is so sick, she can’t move. How can we move to Xinjiang now?” Yang said. He was unsuccessful in trying to get their hukou changed back to Lianghekou. Now the authorities wanted to demolish their house by the end of the year but would not provide another place for his parents to live.

[…] Complaints come from all sides of the anti-poverty project. Forced relocation is a common grievance. But so is unfair distribution of new homes and government funds. Sometimes that is a matter of perception: Villagers who are just above the poverty line but still struggling see their neighbors receiving new apartments and subsidies while they are left behind, and accuse officials of playing favorites. [Source]

China’s stark income inequality further belies state-led narratives about the eradication of poverty. The income gap between Shanghai and Xinjiang grew from 13,506 yuan in 2013 to 24,376 yuan in 2020. Currently, less than one third of Chinese families count as “middle income” (earning between 100,000 yuan to 500,000 yuan). China’s Gini index, a measure that ranks inequality on a 0 to 1 scale, is 0.465, significantly higher than Japan and Korea’s and nearly as high as that of the United States. The issue is deeply sensitive to Chinese authorities. Thomas Piketty, whose book Capital In The Twenty-First Century was praised by Xi Jinping in a 2015 speech for exposing unprecedented inequality in the West, found his second book banned in China after he was unwilling to censor it. In an interview with Constant Méheut of The New York Times, Piketty shared the passages Chinese authorities attempted to delete:

“There is a constructive criticism in this book, and, frankly, it does not blame the Chinese model more than other models in the United States, Europe, India, Brazil,” Mr. Piketty said.

[…] The requested cuts include parts that point out the “extremely rapid rise of inequality” in China, to levels comparable to those seen in the United States. Others highlight issues like China’s lack of an inheritance tax, which Mr. Piketty says results in a significant concentration of wealth.

“It is truly paradoxical that a country led by a Communist Party, which proclaims its adherence to ‘socialism with Chinese characteristics,’ could make such a choice,” Mr. Piketty wrote in a paragraph that he said Citic Press asked to be cut. [Source]

Questions about how to address China’s inequality abound. Recent op-eds have suggested everything from education reform to more holistic poverty metrics. In a blog post, Andrew Batson, the China research director for Gavekal Dragonomics, examined Chinese leaders’ unrealized promises of “common prosperity” and the avenues they might realistically use to achieve it:

When Deng Xiaoping famously endorsed inequality in the 1980s by saying “We should let some people and some regions get rich first,” he justified that in purely instrumental terms: it was “for the purpose of achieving common prosperity faster.” The ultimate goal, Deng consistently said, was to achieve common prosperity, not to entrench deep divisions. Inequality would rise initially to allow China to grow more rapidly, then decline later. Since Deng’s original comments, that commitment has been honored more in the breach than the observance. Xi’s rhetorical focus on common prosperity signals that he aims to complete the great task that Deng began, by achieving the final goal that Deng did not.

[…] Rather awkwardly, however, Xi’s campaign for eliminating extreme poverty coincided with a renewed rise in inequality, as shown by the official Gini index published by the National Bureau of Statistics. Inequality had steadily declined from around 2009 but then started rising again after 2015. For skeptics of Chinese official data, the trend of declining inequality after roughly 2010 is well supported by multiple other sources, so I believe the post-2015 rise or plateau in inequality is also a real phenomenon.

[…] It’s less clear what precise tools the government could use to achieve such reductions in inequality. The associated goal of “equalization of public services” suggests one channel: public expenditures could be raised in lower-income regions to help narrow the income gap. Other policy documents suggests officials are increasingly open to using the tax system to do some redistribution. This would be a big change: while China’s top marginal tax rate is fairly high, the system as a whole is not progressive. Most wage earners are exempt from income tax, and required social security contributions are regressive. [Source]

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