The 8-7 National Poverty Reduction Program in China: the National Strategy and its Impact Wang Sangui, Li Zhou, Ren Yanshun

Background: Evolution of China ’ s Poverty Reduction Policies  During the post-1978 reform period, large- scale poverty reduction benefiting from specific government policies as well as fast economic growth has been one of China ’ s greatest accomplishments. Rural poor population decreased from about 200 million in 1981 to 28 million in 2002 (official estimation); Or from about 490 million to 88 million (1$ one day poverty line).

The Numbers of Poor in China,

Background (Cont.)  China ’ s poverty reduction policies can roughly be classified into four phases since Rural Reform ( ) The National Targeted Poverty Reduction Programs ( ) The 8-7 Plan ( ) Poverty Reduction Strategy in the New Century ( )

Background (Cont.)  Poverty reduction was much more dramatic in early 1980s and during when fast economic growth were accompanied by the increases of the rural-urban terms of trade as agricultural prices increased.

Objectives of the 8-7 Plan  The overall objective of the 8-7 Plan was to lift the majority of the remaining 80 million poor above the government ’ s poverty line during the seven year period  Where are also a number of specific objectives.

Measures of the 8-7 Plan  Designate 592 national poor counties ;  Assign poverty reduction responsibility to the local governments ( “ four to provinces ” );  Establish a framework for East-West counterpart poverty reduction activities,  Strengthen departmental poverty reduction efforts,  Significantly raise poverty reduction funds.,  Introduce tax reduction policies,  Experiment with different poverty reduction approaches,  Encourage international and NGOs to contribute to poverty reduction.

Organizational Structure of the 8-7 Plan

Fund Allocation  RMB 113 billion (or US$ 13.6 billion), or about 5 to 6 percent of total govt. expenditures were funded from the central govt.  The allocation of poverty funds mainly reflected the numbers of poor counties and poor population in each province and the bargaining power of local governments.  Within provinces, allocation to counties followed different criteria.  Fund allocation among sectors is in favor of production activities and infrastructure construction.

The Main Types of Poverty Programs  Subsidized Loans The subsidized loan program was to support the production activity and economic development of poor areas as well as the poor directly ; accounting for over one half of the total poverty funds; Managed by ABC; Poor targeting and low repayment rate are major problems.

The Main Types of Poverty Programs (Cont.)  Food for Work The FFW program aimed at making use of surplus labor in poor areas to build infrastructure in poor areas; the FFW program accounted for nearly 30 percent of the total poverty funds; Managed by NRDC; Has done a relatively good job in constructing infrastructure that has benefited poor areas, but could have done better in immediate poverty alleviation.

The Main Types of Poverty Programs (Cont.)  Budgetary Grants Government budgetary grants supported investment in poor areas including productive construction projects, small-scale infrastructure, basic education and health care, culture promotion, science and technology extension, training and industry promotion ; accounted for less than 20 percent of the total poverty funds; MOF has been responsible for the budgetary grants ; Their effectiveness could have been improved by measures to limit their diversion.

Other poverty reduction efforts  Departmental Efforts  East Supports West  Poverty Reduction Activities of NGOs  Poverty Reduction Activities of International Organizations

Outputs  The magnitude of outputs is enormous. The rural poverty monitoring survey indicates that during : the 8-7 Plan directly supported 30.7 million households and 125 million persons, employed million workers in poverty reduction activities, newly developed 3.25 million hectares of cash trees, 320 thousand km of roads, 360 thousand km of electricity lines, drinking water for 53.5 million persons and 48.4 million animals, etc.

Impact  Officially designated “ poor ” counties delivered higher than average growth in grain and agricultural production, and in household net income.  Empirical analysis shows that household income and consumption in the officially designated “ poor ” counties grew significantly faster than in other counties.  The rate of return of poverty investments were estimated to be over 10%.  What is not sure is how the benefits are distributed within the county.

Key Factors  Stable political environment and rapid economic growth established an important context for successful poverty reduction.  It is especially agricultural GDP growth that is highly correlated with poverty reduction.  Similarly to the agricultural growth, also the rapid development of the private economic sector contributed to poverty reduction.  Government commitment and the strong resources mobilizing capacity of Chinese government.  The implementation of the 8-7 Plan was supported by a well-established administrative system.

Institutional Innovation  China turned from relief dependent poverty reduction to poverty reduction emphasizing development.  China has moved from purely government-led poverty reduction effort to involving the entire society.  China set up a multi-departmental coordinating mechanism.

Learning and Experimentation  China ’ poverty reduction is a process of constant learning and exploration. There have been a number of changes in poverty reduction project and fund management. The mode of delivery and management of credit funds for poverty reduction has changed. China introduced participatory approaches to poverty reduction.

Lessons  Economic Growth Is Critical for Poverty Reduction ;  Basic Insurance Programs Need to Complement Poverty Reduction Effort;  Targeting and Participation of the Poor Matter ;  Objectives Need to Be Clear ;  Human Development Deserves Special Emphasis ;  Poverty Alleviation Requires a Coordinated Effort ;  Poverty Alleviation Effort Should Break the Traditional Rural-Urban Segmentation.