Chinas war against the many faces of poverty towards a new long march

3 Income destitution in China and government 4 The measurement of multidimensional poverty in China: rural–urban, regional and 5 Trends in multidimensional poverty and the determinati

China’s War against the Many

Faces of Poverty

China’s War against the Many Faces of Poverty measures multidimensional

poverty in China and deprivation related to income, education, health issues, living standards and social security The book adopts a well-developed methodology using three different empirical datasets to analyse aspects of regional diversity across rural and urban and migrant populations of China

The book also analyses the links between development policies considered by the government and the various facets of poverty in light of rapid economic growth and addresses important policy implications

In the existing literature, in-depth research on multidimensional poverty in China is almost non-existent This book is a pioneer study in this important

fi eld of research Its innovative approach in concepts and methodologies and its analysis of policy implications make this book a defi nitive and valuable addition

to the literature

Jing Yang is Lecturer at Jiangxi Agricultural University, China.

Pundarik Mukhopadhaya is Associate Professor at the Department of Economics,

Macquarie University, Australia

96 The Microfi nance Impact

Ranjula Bali Swain

97 Gendered Insecurities, Health

and Development in Africa

Edited by Howard Stein and

Amal Hassan Fadlalla

98 Financial Cooperatives and

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100 Digital Interactions in

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An economic perspective

Jeffrey James

101 Migration and Inequality

Edited by Tanja Bastia

102 Financing Regional Growth

and the Inter-American

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104 Disasters and the Networked Economy

J.M Albala-Bertrand

105 Microfi nance, Debt and Over-Indebtedness

Juggling with money

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106 The Universal Social Net and the Attack on World Poverty

Safety-Pressing need, manageable cost, practical possibilities, favourable spillovers

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107 Youth and Employment

in Sub-Saharan Africa

Working but poor

Edited by Hiroyuki Hino and Gustav Ranis

108 Financial Stability and Growth

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Negotiating tradition, power and fragility in Afghanistan

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122 China’s War against the Many Faces of Poverty

Towards a new long march

Jing Yang and Pundarik Mukhopadhaya

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China’s War against the Many Faces of Poverty

Towards a new long march

Jing Yang and Pundarik

Mukhopadhaya

First published 2016

by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2016 Jing Yang and Pundarik Mukhopadhaya

The right of Jing Yang and Pundarik Mukhopadhaya to be identifi ed as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic,

mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks

or registered trademarks, and are used only for identifi cation and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Names: Yang, Jing, 1982- author | Mukhopadhaya, Pundarik, author.

Title: China’s war against the many faces of poverty : towards a new long march / by Jing Yang and Pundarik Mukhopadhaya Description: Abingdon, Oxon ; New York, NY : Routledge, 2016 | Series: Routledge studies in development economics ; 122 Identifi ers: LCCN 2015039767 | ISBN 9781138819603 (hardback) | ISBN 9781315744346 (ebook)

Subjects: LCSH: Poverty—China | Economic development— China | China—Economic conditions | China—Economic policy.

Classifi cation: LCC HC430.P6 Y344 2016 | DDC

To my parents Wanxian Yang and Fenglan Peng,

husband Zhanbin Liu, children Jiayang and Mengyang

—Jing Yang

To Chandrama, Proteeti and Prajusha

—Pundarik Mukhopadhaya

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3 Income destitution in China and government

4 The measurement of multidimensional

poverty in China: rural–urban, regional and

5 Trends in multidimensional poverty and the

determination of key indicators in rural, urban

6 Analysis of the multidimensional poverty

of migrants in comparison with rural and

2.1 The link of functioning and capability 19

3.2 The Urban Pension System (for Non-employees) 105

4.2 Urban multidimensional poverty in each region 1374.3 Rural multidimensional poverty in each region 1374.4 Overall multidimensional poverty in each region 1374.5 The provincial contribution to national

5.2 The trends of multidimensional poverty measurement 1765.3 The trends of deprivation in each dimension 1775.4 The distinction of multidimensional poverty measurement 1875.5 The distinction of deprivation in indicators 1885.6 The trends in multidimensional poverty measurements

5.7 The trend of rural multidimensional poverty measurement 2005.8 The trend of urban multidimensional poverty measurement 2015.9 Rural–urban ratio of raw headcount ratios: various indicators

5.10 Rural–urban ratio of censored headcount ratios:

5.11 The trend of multidimensional poverty measurement

5.13 The trend of multidimensional poverty measurement

Figures

Figures xi

6.1 The trends in regional multidimensional poverty

measurement 2526.2 Comparison of the AF multidimensional poverty

A1.1 The global poverty with the $1.25 poverty line 12

A1.3 The Gini coeffi cient estimated by World Bank and NBS 14A1.4 Urban and rural per-capita disposable income 15

2.3 The feasible dimensions in Chapters 4 to 6 242.4 The dimensions/indicators used in previous literatures 34A2.I.1 Well-being theories: a summary of the literature 45

A2.II.4 The reporting of eigenvectors of retained components 51A2.II.5 The rescale weights of dimensions for retained

components

52

3.1 Estimation of the FGT index by the World Bank 663.2 Other World Bank indicators of development 683.3 The ADB’s poverty line and measurement of poverty 70

3.6 The four stages of the rural poverty reduction 773.7 The rural poverty line, the poor population and the

headcount ratio

793.8 Other dimensions of rural development by the NBS 803.9 The regional distribution of rural poverty 813.10 The poverty headcount ratio from previous studies 823.11 The dimensions discussed in the literatures 873.12 The evolution of special poverty-alleviation programs 923.13 The amount of anti-poverty funding for key counties in

national poverty alleviation

95

Tables

Tables xiii

3.14 The standard minimum wage per month in 2014 107

A3.II.1 The amount of subsidies to increase agricultural income 115

A3.II.4 The statistics of the New Cooperative Medical Care

System

117A3.II.5 The fund collection and payment of the urban medical

insurance system

118

A3.II.9 The statistics of construction of safe drinking water 119A3.II.10 The statistics of the rural Minimum Income Guarantee

system

120A3.II.11 The statistics of the urban Minimum Income Guarantee

system

120A3.II.12 The statistics of the Urban Pension Insurance System

for Employees

121A3.II.13 Financial expenditure for the New Pension Insurance

for Rural Residents

121

4.2 The dimensions, indicators and their cut-offs 1284.3 The weights of each dimension and indicator 1314.4 The multidimensional poverty measurements in 2010

using Weight (I)

1334.5 Provincial multidimensional poverty measurements

using Weight (I)

1354.6 The multidimensional poverty measurements using

Weight (II)

1384.7 The multidimensional poverty measurements using

Weight (III)

1394.8 The multidimensional poverty measurements using

Weight (IV)

1404.9 The correlation coeffi cients between the different

weights

1424.10 The Friedman test for the ranking concordance of

without the income

147

xiv Tables

4.14 The correlation coeffi cients between M0 with and

without income dimension

1474.15 The multidimensional poverty of each province and the

ranking

1484.16 The correlation between the income poverty and the

multidimensional poverty

1494.17 The decomposition by dimensions and indicators 1504.18 The raw headcount ratio and the censored headcount

ratio

1524.19 Top six indicators contributing to multidimensional

poverty: various weights

155

4.21 Major indicators of poverty for various provinces using

different weights

1604.22 The fi nancial fund of poverty reduction in 2012 165

5.3 The dimensions, indicators and indicators’ cut-offs 1705.4 The weights of each dimension and indicator 1745.5 Trends in multidimensional poverty measurements 175

5.7 Censored headcount ratio for each indicator 180

5.9 The contribution of each indicator in AF approach 1825.10 The dimensions, indicators and membership function 184

5.12 The degree of deprivation in income and

highest-level-of-education indicator

1865.13 The contribution of each indicator in TFR approach 187

5.15 The AF multidimensional poverty measurements using

other weights

1915.16 Top three indicators in order of contribution to

multidimensional poverty: various weights

1925.17 The TFR multidimensional poverty measurements

using other weights

1935.18 Major contributing factors to the TFR

multidimensional poverty approach: various weights

1945.19 The correlation coeffi cients between the different

weights with the AF approach

1955.20 The correlation coeffi cients between the different

weights in the TFR approach

1975.21 The rural multidimensional poverty index 1995.22 The urban multidimensional poverty index 200

Tables xv

5.23 The rural–urban ratio of the multidimensional poverty

index

2025.24 The decomposition by rural and urban areas 203

5.27 Comparison of contributions of indicators 2085.28 The rural–urban ratio of the multidimensional poverty

index with other weights

2095.29 The decomposition by rural and urban areas using

other weights

2105.30 Top three indicators in order contributing

multidimensional poverty: various weights

211

5.34 The provincial TFR poverty index in each wave 2175.35 The change in TFR poverty index in each province 2185.36 The major contributing indicators to provincial

multidimensional poverty

2195.37 Major contributing indicators to regional

multidimensional poverty

2215.38 The summary of existing literature using CHNS and a

comparison with our results

2225.39 The best and worst performer in poverty reduction 2306.1 The codes in the questionnaires of the indicators 2376.2 The size of the samples and missing values of each

indicator

238

6.4 The cut-off and membership function of each indicator 2426.5 Categories of highest level of education in different

datasets

2436.6 The categories of work status in the datasets 246

6.8 The AF multidimensional poverty measurements 248

6.10 The censored headcount ratio of each indicator 2496.11 Contribution of each indicator in the AF approach 251

6.14 The TFR multidimensional poverty measurements 2546.15 Degrees of deprivation in the TFR approach 254

6.17 The regional TFR multidimensional poverty

measurements

256

xvi Tables

6.18 The urban AF multidimensional poverty measurements 2576.19 The rural AF multidimensional poverty measurements 2586.20 The rural–urban ratio of the multidimensional poverty

index

2596.21 The TFR multidimensional poverty measurements 2606.22 The decomposition by urban and rural sub-groups 261

6.24 Censored headcount ratio for each indicator 2636.25 Degree of deprivation in the TFR approach 2646.26 The contribution of each indicator for each group in

AF approach

2656.27 The contribution of each indicator for each group in

the TFR approach

2676.28 The rural–urban ratio of the multidimensional poverty

index in each region

2686.29 Decomposition by urban and rural sub-groups 2696.30 The rural AF multidimensional poverty measurements 2716.31 The migrant AF multidimensional poverty

measurements

2726.32 The migrant–rural ratio of the multidimensional

poverty index

2726.33 The TFR multidimensional poverty measurements 2736.34 The decomposition by rural and migrant sub-groups 2746.35 The raw headcount ratio in the AF approach 2756.36 Censored headcount ratio of each indicator 2756.37 Degree of deprivation in the TFR approach 2766.38 Contribution of each indicator for the rural and

migrant groups in the AF approach

2776.39 Contribution of each indicator for the rural and

migrant groups in the TFR approach

2786.40 The migrant–rural ratio of the multidimensional

poverty index in each region

2796.41 The raw headcount ratio of health insurance for

migrants in each region

2806.42 The decomposition by rural and migrant sub-groups 2816.43 The urban AF multidimensional poverty measurements 2826.44 The migrant AF multidimensional poverty

measurements

2836.45 Migrant–urban ratio of the multidimensional poverty

index

2846.46 The TFR multidimensional poverty measurements 2856.47 The decomposition by urban and migrant sub-groups 285

6.49 The statistical description of the income for the urban

and migrant group

286

Tables xvii

6.50 Censored headcount ratio of each indicator 2886.51 The degree of deprivation in TFR approach 2886.52 Contribution of each indicator for each group with the

AF approach

2906.53 Contribution of each indicator for each group with

TFR approach

2926.54 Migrant–urban ratio of the multidimensional poverty

index in each region

2936.55 Decomposition by urban and migrant sub-groups 294A6.I.1 The AF multidimensional poverty measurements in the

Eastern region

297A6.I.2 The AF multidimensional poverty measurements in the

Central region

298A6.I.3 The AF multidimensional poverty measurements in the

Western region

299A6.II.1 The urban and rural multidimensional poverty

measurements in the Eastern region

300A6.II.2 The urban and rural multidimensional poverty

measurements in the Central region

301A6.II.3 The urban and rural multidimensional poverty

measurements in the Western region

302A6.III.1 The rural and migrant multidimensional poverty

measurements in the Eastern region

303A6.III.2 The rural and migrant multidimensional poverty

measurements in the Central region

304A6.III.3 The rural and migrant multidimensional poverty

measurements in the Western region

304A6.IV.1 The urban and migrant multidimensional poverty

measurements in the Eastern region

305A6.IV.2 The urban and migrant multidimensional poverty

measurements in the Central region

306A6.IV.3 The urban and migrant multidimensional poverty

measurements in the Western region

307

7.2 The selected dimensions and indicators in the three

datasets

311

A part of this research was also carried out when Jing Yang returned to Jiangxi Agricultural University Jing Yang would like to thank Professor Zhaojiu Chen, Dean of the Department of Economics and Management, and other colleagues for their support and encouragement Further, we warmly acknowledge and thank the Chinese National Social Science Funds No.13CJL070 (“The Research

on the Pro-poor Ecological Compensation Policies: From the Sustainable hood Perspective”) for research support

Liveli-The fi ndings of this research, at its preliminary stage, were presented at a number of places: Chinese Academy of Social Sciences (CASS), Fudan University; Central University of Finance and Economics at Beijing, East Asian Economic Association Meeting; and workshops at Nagoya University and the Asian Devel-opment Bank From these presentations we received helpful comments, correc-tions, improvements and suggestions, and I am especially indebted to Jacques Silber, Guanghua Wan, Zhang Zhanxin, Meng Xin, Li Shi and Luo Chuliang Luo Chuliang and Xue Jinjun have been extremely generous with giving access

to some special data sources Discussion with Wei Zhong on the pension reform

system in China, and with Zhang Zhanxin on hukou and Dibao helped me to

formalize the idea of social reforms in China CASS and Macquarie University

fi nanced me for my several trips to China

Ms Laura Billington copy edited the whole draft manuscript with great care and patience, for which I am grateful I deeply appreciate the attentive and gentle support of Chang (Michael) Wu (under Macquarie’s Merit Scholar scheme) and my students Sigit Triandaru and Steven Yuan who collected some material and assembled the bibliography with high precision and expertly processed literature searches It is a joy to thank the commissioning editor Yongling Lam at Taylor and Francis and also people from Apex CoVantage for

Acknowledgements xix

managing the production of the book Jing especially appreciates her husband Zhanbin Liu and her two children Jiayang and Mengyang for their support I would like to thank my family, whose understanding of my frequent absences and inability to meet usual commitments made it possible to conduct this research The usual disclaimers apply

Pundarik MukhopadhayaSydney, 12 February, 2016

ADB Asian Development Bank

AF approach Alkire-Foster method

ALEP approach Aupspitz, Lieben, Edgeworth and Pareto

ANU Australian National University

BNU Beijing Normal University

BRICS Brazil, Russia, India, China and South Africa

CASS Chinese Academy of Social Sciences

CFPS China Family Panel Studies

CHIP China Household Income Project Survey

CHNS China Health and Nutrition Survey

CIID China Institute for Income Distribution

CPC Communist Party of China

CRRA constant relative risk aversion

DFID The Department for International Development of UK

Dibao Minimum Income Guarantee

ECHP European Community Household Panel

FDI foreign direct investment

FGT Foster-Greer-Thorbecke

Hukou the household registration

ISSS Institute of Social Science Survey of Peking University

IZA Institute for the Study of Labor

MCA multiple correspondence analysis

MDGs Millennium Development Goals

MOA Ministry of Agriculture

MPI Multidimensional Poverty Index

NBS National Bureau of Statistics of China

OECD Organization for Economic Co-operation and DevelopmentOutline Development-oriented Poverty Reduction for China’s Rural

Areas (2011–2020)PCA principal component analysis

Abbreviations

Abbreviations xxi

PPP purchasing power parity

R&D research and development

RCRE Research Centre for Rural Economy of the Ministry of

Agricul-ture of ChinaRMB Chinese currency renminbi

RUMiC rural–urban migration in China

SARS Severe Acute Respiratory Syndrome

SE approach social exclusion approach

SL approach sustainable livelihoods approach

SOEs state-owned enterprises

TFA totally fuzzy approach

TFR approach totally fuzzy and relative approach

UNDP United Nations Development Programme

UQ University of Queensland

VWA Vero and Werquin Approach

WHO World Health Organization

WTO World Trade Organisation

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China has been carrying out a frontal attack on mass poverty and ment after dispossessing landlords and nationalizing industry It is not easy

unemploy-to see how the Third World can mount the attack while preserving private property in the means of production and respecting the rules of free-market economy

Joan Robinson ( 1979, p 10)

Regardless of how poverty is defi ned, addressing abject poverty has always been one of the ultimate objectives of economic development in developing and developed countries Being poor is generally defi ned as being deprived of what

is required to live a meaningful life The exact defi nition of poverty has long been debated The concepts of absolute and relative poverty are often invoked

in the relevant literature But because of the ambiguous nature of these concepts, they often generate controversy and debate The absolute concept may suggest greater precision and objectivity, while the idea of relativity may convey a sense

of subjectivity and arbitrariness The choice between these concepts would depend partly on the purpose for which the concept is to be used and partly

on philosophical and moral considerations The use of the relative measure can help establish the idea that poverty can exist even in societies with a high mean income Amartya Sen (1980) invoked the notion of deprivation to capture the essence of an absolute measure of poverty He accepts that what constitutes

“deprivation” may vary from society to society but observes that these variations are matters of objective study While “low income” may be an indicator of poverty, a target income is not an end in itself but only a means to achieving what Sen (1989) has called “human functioning” To emphasise the connections between poverty and human functioning, Sen has developed the concept of

“capabilities” To have capability in this sense is to be able to “function” in a chosen way or to have options in a “capabilities set” In interpreting this con-cept, Atkinson ( 1995) writes, quoting Sen, that “in the chain Commodities – > Characteristics – > Capabilities – > Utility, it is “the third category – that of the capability to function – that comes closest to the notion of standard of living”, and that, if the argument is accepted, it provides a basis for “sorting out the absolute–relative disputation in the conceptualisation of poverty

Introduction

1

2 Introduction

At the risk of oversimplifi cation, I would like to say that poverty is an absolute notion in the space of capabilities but very often it will take a relative form in the space of commodities and characteristics” (p 17) This method of viewing absolute and relative deprivation has not only helped to resolve the conceptual ambiguity inherent in the concepts themselves, it has also infl uenced empirical implementation of the ideas to broaden the defi nition of human development

In this book we will look into absolute and relative poverty in China from a broader perspective of human development

1.1 Poverty scenario worldwide

There is no doubt that global income poverty has declined tremendously in recent decades The World Bank’s estimate shows that the number of poor in the population who live under the $1.25 poverty line has halved since 1990 from a global perspective, and the incidence of poverty had dropped to 16.99 per -cent by 2011 (see Table A1.1 in the Appendix) However, this reduction of poverty is uneven across regions East Asia and the Pacifi c have experienced the greatest decrease in poverty, while Sub-Saharan Africa has not only recorded the lowest decreases in poverty, the number of poor in the population has been increasing since 1990

Furthermore, the World Bank (2015) reports that more than 70 percent of global extreme poverty (under the $1.25 poverty line) is concentrated in 10 coun -tries: India (30 percent), Nigeria (10 percent), China (8 percent), Bangladesh (6 percent), the Democratic Republic of Congo (5 percent), Indonesia (4 percent), Ethiopia (3 percent), Pakistan (2 percent), Madagascar (2 percent) and Tanzania (2 percent) Although the two most populous countries – China and India – are still the top countries with the largest share of global poverty, they have played

an important role in the reduction of global poverty From 2008 to 2011, the

fi ve countries contributing the most to global poverty were India, China, Indonesia, Pakistan and Vietnam (World Bank, 2015)

The other faces of poverty have been promoted unevenly For example, the Millennium Development Goals Report 2014 (UN, 2014) reveals t hat the proportion of undernourished people in developing regions decreased to 14.3 per -cent in 2011–2013 but was 25 percent in Sub-Saharan Africa and 11 percent

in Eastern Asia Similar observations can be made for education The adjusted net enrolment rate for primary education in developing regions increased to 90 per-cent in 2012 Among the regions, Northern Africa, which had a net enrolment rate of 99 percent, had almost achieved the universal primary education goal, compared to Sub-Saharan Africa, which only had a net enrolment rate of 78 percent

The World Bank (2015) al so presents that economic growth’s inclusiveness (including jobs and a social contract) and its sustainability (including social,

fi scal and environmental dimensions) are the key elements of poverty reduction Thus, for developing countries, investing in human capital (e.g earlier and greater investments in educating the young), establishing effi cient social safety

Introduction 3

nets and emphasizing environmental sustainability are the main challenges to achieving pro-poor economic growth

1.2 China’s economic development in perspective

After new China was founded in 1949, the great reform that came about 1979 was considered a milestone in the transition from planned economy to market economy, leading to the rapid economic growth and development that have continued since

1.2.1 Development stages

There are mainly four stages in China’s development since 1978 (see Table A1.2

in the Appendix) Classifi cation of the stages is based on the key events of its development In 1978 the third Plenary Session of the 11th CPC Central Com-mittee pushed the country on the road to reform and openness At the end of

1984, the third Plenary Session of the 12th CPC Central Committee put forward the idea of a planned market economy In 1992 the inspection speech in South China by Deng Xiaoping confi rmed that construction of a market economy was the goal of economic reform In 2001 China became a member of the World Trade Organisation (WTO)

At the fi rst stage of China’s economic development, two important reforms were implemented: establishment of the household contract responsibility system and the introduction of four special economic zones The household contract responsibility system promoted agricultural productivity signifi cantly The agri-cultural production value increased by 7.71 percent per annum during the period 1978–1984, which was much higher than the growth rate of 2.48 percent during the period 1972–1977 Besides the reforms in rural regions, some experiments were launched in the industry sector, such as expanding enterprise autonomy in order to promote industrial productivity Expanding enterprise autonomy means that state-owned enterprises1 could have the rights to make production plans, sell goods, keep part of the profi ts, hire workers and so on Based on these reforms, the economic growth rate was 9.6 percent per annum during the fi rst stage Moreover, the strategy for economic openness was also launched Four special economic zones – Shenzhen, Zhuhai, Shantou and Xiamen were estab-lished to attract foreign direct investment (FDI) and boost exports

At the start of the second stage, the idea of a planned market economy was proposed, indicating that the planned economy would be transferred to a market economy However, at this stage the double-track system appeared instead of a market economy The double-track system included both planned and market economies On the one hand, the government set mandatory plans including the quantities and prices for key agricultural products On the other hand, surplus products could be sold at market prices The double-track system was also applied

to industrial capital goods such as steel For other consumer goods and unplanned goods, the prices were determined by the market These reforms focused on the industrial sectors The State Council launched the reform of diverse forms of

4 Introduction

ownership in 1986 For small-sized state-owned enterprises, lease and contract modes were proposed, while other forms of ownership such as shareholding were proposed for large and medium-sized state-owned enterprises Meanwhile, the township enterprises developed quickly in rural regions The economic growth rate was 8.97 percent per annum during the second stage

At the third stage, a market economy was identifi ed as the goal of economic reform Thus the debate about whether a market economy was appropriate for China was stopped and the double-track system converted to a single-market economy In 1993 the prices of grain started to be determined mainly by the market, as was the price of cotton in 1998 Since then the prices of more agri-cultural goods are being determined by the market Market-oriented reforms

of housing, the health care systems and the state-owned enterprises also began

at this stage In 1993 the third Plenary Session of the 12th CPC Central mittee pointed out that the development direction for the reform of state-owned enterprises was by way of the modern corporation system By 2000 the majority

Com-of the large and medium-sized state-owned enterprises had established the modern corporation system Besides the transition to a market economy, another question arose in the rural regions due to the fact that the 15-year term of land contracts would expire in 1993 Thus the CPC Agricultural Conference deter-mined to lengthen the term of land contracts to 30 years, which was also confi rmed by the Land Management Law in 1998 During this stage the eco-nomic growth rate was 10.58 percent per annum

The fourth stage started in 2001 when China became a member of the WTO Since then the trade scale has increased tremendously, from $509.77 billion in

2001 to $4,158.99 billion in 2013, when China became the biggest trading country As rural and urban inequality increased, the government began to focus

on the development of agriculture, the countryside and farmers from 2004 A series of rural preferential policies was implemented to promote agricultural production, which included abolishing the agriculture tax and tax on agricultural and forestry specialties except tobacco and applying three new subsidies to farmers (i.e subsidies directly to grain growers, subsidies for purchasing fi ne seeds, subsidies for purchasing agricultural machinery and tools), as well as general subsidies for purchasing agricultural supplies In 2005 the fi fth Plenary Session

of the 16th CPC Central Committee proposed to construct the New Socialist Countryside, including the economic, social and political developments in rural regions In 2014 the National New Urbanization Plan 2014–2020 was promul-gated This plan proposes to gradually settle the former agricultural population who have migrated to the cities, optimize urbanization and increase the sustain-ability of cities to eventually achieve unifi ed urban and rural development The economic growth rate reached 10 percent per annum from 2001 to 2013

1.2.2 Development strategies

As discussed, there are four strategies that should be noted: the household contract responsibility system in rural regions, the reform of state-owned enter-prises in urban regions, economic openness and urbanization

Introduction 5 (1) The household contract responsibility system

The household contract responsibility system is the basic rural land management system that has operated in China since the 1980s It is worth noting that the property of rural land is owned by the collective (all the residents in the villages and towns) Before the introduction of the household contract responsibility system, it was the collective not the rural households that had land management rights, and agricultural revenue was distributed equally Thus rural households had less motivation for production, and agricultural productivity was low The household contract responsibility system divided the property of rural land into two parts: collective land ownership and land management rights owned by rural households Thus on the one hand, the household contract responsibility system maintains the collective ownership of land, and on the other, rural households have the management rights by contract At fi rst, the term of land contracts was three to fi ve years and intended to be 15 years by the “fi rst docu-ment” of the CPC in 1984 In 1993 the CPC Agricultural Conference deter-mined to lengthen the term of land contracts to 30 years when the 15-year term of land expired In 2003 the Law of the Contract for Rural Land was announced, which allows the transfer of right-to-land contractual management among rural households Thus, the household contract responsibility system ensures the long-term rights to the management and revenue from rural land for rural households

(2) The reform of state-owned enterprises

Before economic reform, the operation of state-owned enterprises was under the planned economy, and the state-owned enterprise itself had no autonomy Although some reforms had been carried out before the second stage, the mark

of the reforms of state-owned enterprises was the presentation of the modern corp oration system in 1993 The characteristics of the modern corporation system are distinct property and duty rights and scientifi c management in order

to meet the market economic requirements In 1995 the State Council endorsed

a policy to “retain the large, release the small”, which means the governments carried out a strategic reorganisation of state-owned enterprises by managing large enterprises well and relaxing control over small ones By 2000, most of the large and medium-sized state-owned enterprises had accomplished the task

of establishing the modern corporation system

Besides the reform of state-owned enterprises, the development of private enterprises and township enterprises also has promoted economic growth The private economy has continued to develop in rural regions since the 1980s because of surplus labour As some members of the surplus labour force migrated

to towns and cities, others stayed in their home towns and found jobs in agricultural sectors, such as transportation and retail businesses Similarly, since

non-1979 the private economy in urban regions has developed in order to solve the employment problems, and township enterprises have developed rapidly since

1984 However, the expansion in private and township enterprises slowed down

6 Introduction

during the period 1989–1992 After that period, however, the development of private and township enterprises progressed quickly, and they have now become important sources of employment

The concept of economic openness was applied in 1978 when four special economic zones were established The opening pattern of “special economic zones – open coastal cities – open coastal economic areas – inland” has been formed Reforms such as the decentralization of management rights for inter-national trade from governments to enterprises, the market-oriented reform of foreign trade enterprises and export incentive policies such as the export rebate were achieved before the 1990s In 1994 the government started the reform

of trade liberalisation, which included the reduction of tariffs and non-tariff barriers, market-oriented reform of foreign exchange administration and legisla-tion of international trade More specifi cally, the tariffs and non-tariff barriers reduced sharply after 2001 when China joined the WTO The dual foreign exchange rate (the offi cial and market exchange rate) was unifi ed, and the Chi-nese currency RMB became convertible on current accounts in1994 In 2005, the managed fl oating rate system was adopted and the exchange rate of RMB appreciated by 2 percent against the US dollar The Law of Foreign Trade was implemented in 2004, indicating that legislation of international trade had been promoted For the FDI, the reform process functions from the coastal areas to inland, as well as from the east to the central and west In 1979, three special economic zones were established in Guangdong province and one special eco-nomic zone in Fujian province Another 14 coastal cities such as Shanghai, Tianjin, Dalian and Guangzhou and so on were granted the status of Open Coastal Cities during 1984 to 1985 In 1992 the State Council decided to open six port cities along the Yangtze River, 13 inland border cities and 18 inland provincial capital cities Since then the FDI has been promoted nationwide

(4) Urbanization

Urbanization in China follows from the development of industrialization in that the non-agricultural industries concentrate in the cities and towns and the surplus labour force migrates from rural to urban regions Thus, the pace of urbaniza-tion has increased since 1987, when the economic reforms and openness occurred The urbanization rate rose from 17.9 percent in 1978 to 53.7 percent

in 2013, with an average annual growth rate of 1.02 percent At the same time, the size of the urban resident population increased from 0.17 billion to 0.73 billion The number of cities increased from 193 to 658, while the number of towns increased from 2,173 to 20,113

However, the urbanization rate in China is still lower than that of developed countries (80 percent on average) and even lower than urbanization rates of other less developed countries with similar per-capita income (60 percent on

system (Hukou), the housing system and the employment system are the reasons for the lower urbanization rate Among these, the separated Hukou is the most signifi cant obstacle The migrant workers whose Hukou are rural but they work

in urban regions cannot enjoy public services such as health care, education, pension and social insurance The urbanization rate will be 35.3 percent in

2012, becoming 17.3 percentage points lower if the calculation of population

is based on the Hukou rather than place of residence Besides the lower

urban-ization rate, there are other problems such as the less effi cient use of land for urban construction, the irrational scale and structure of cities and towns, low levels of management of public services and so on Accordingly, the State Council pronounced the National New Urbanization Plan 2014–2020 in 2014 in an attempt to solve these problems In the New Urbanization Plan, the urbaniza-tion rate based on the resident population will increase to 60 percent, and the

urbanization rate based on the Hukou will increase to 45 percent in 2020.

1.2.3 Inherent causes of inequality

The income gap has widened during the course of the market reforms At the start of the reforms, the urban Gini coeffi cient was 0.15 and the rural Gini coeffi cient was 0.2, but the national Gini coeffi cient increased to 0.479 in 2003.2Table A1.3 in the Appendix presents the Gini coeffi cient estimates by the World Bank and the National Bureau of Statistics of China (NBS) It can be seen that the Gini coeffi cient increased before 2008 and then decreased Some studies argue that the economic reforms were the reason for the widening inequality (Bian and Zhang, 2002) because the reforms embody an effi ciency preference The unbalanced development strategies which led to the uneven economic growth ultimately resulted in widened inequality (Zhou et al., 2010; Lin and Chen, 2013) However, Li and Zhao (2011) argue that it was a mistake to attribute the income gap to the market reforms The institutions and policies inherited from the traditional planned economy, the emerging systems and policies that run counter to market, the lack of government action on gaps or distortions in the market, insuffi cient capital regulation and labour protection and excessive government intervention are all key factors in the widening income gap Regardless of the arguments, the objective relationship between economic reform and inequality is indeed apparent Accordingly, the decline of the Gini coeffi cient since 2008 has arguably been caused by the policies that improve people’s livelihoods, such as enhancing employment outcomes and social security

The three main kinds of inequality in China can be described as rural–urban, provincial and regional, as well as sectoral Among these, rural–urban inequality

8 Introduction

is the worst and the most important factor in national inequality (Sicular et al., 2007; Li and Luo, 20 10) It can be observed that rural income is much lower than urban income, and the rural–urban gap was narrowed in three periods, 1978–1988, 1994–1997 and 2008–2013 (Table A1.4 in the Appendix presents the rural–urban income gap since 1978) The reason for the narrowed rural–urban gap is a higher growth rate in rural income than in urban income The average annual growth rate of rural income was 10.90 percent, 5.79 percent and 10.16 percent during the periods 1978–1988, 1994–1997 and 2008–2013 respectively, while the average annual growth rate of urban income over the same periods was 5.78 percent, 4.48 percent and 8.51 percent respectively More specifi cally, the higher growth rate of rural income during the period 1978–1988 was because of improved agricultural productivity and higher prices for agricultural products, which can be attributed to the reforms in rural regions The reason for the higher growth rate in rural income in the period was the higher price of agricultural products as the result of the reform in the pricing system (Li, 2010) As indicated, the narrowed income g ap after 2008 was due

to the policies that improve people’s livelihood, especially in the rural regions Moreover, urbanization also helps to reduce rural–urban inequality The income that migrant workers send back to their home towns helps to reduce the rural–urban income gap (Sicular et al., 2010) Wan (2013) confi rms that u rbanization caused the rise in inequality during the period 1978–1994 but has had as much

to do with reducing inequality since then Although the rural–urban income gap narrowed somewhat in the short term, the gap is still wide The highest rural–urban ratio was 66.31 in 1988, which meant that urban income was 1.5 times that of rural income On the average, urban income is 2.44 times that of rural income since 2000 The reason for greater rural–urban inequality

is the separated development modes in rural and urban regions that prioritize industry development at the cost of agriculture (Lin et al., 1999) Wan and Li

(2013) even found that the discrimination of Hukou leads to a lower income

for migrant workers and higher rural–urban inequality

Provincial and regional inequality is another important factor in national inequality (Zhao and Li, 1999) Previous studies have shown that provincial inequality decreased at the beginning of the reform period and then increased (Cai et al., 2001; Lin and Liu, 2003; Wang and Fan, 200 5) Lin et al (19 98) found that ineq uality among the East , Central and West regions decreased during the period 1978–1990 but has been increasing since then The uneven growth among the provinces and regions is considered to be a key factor in provincial and regional inequality The industrial concentration and different productivity of labour caused by the increasing returns to scale, economic openness and market potential are the main factors in the uneven growth and inequality among regions (Fan, 2006; Wang, 2006; Liu and Yin, 2008; Shen and Song , 2011) Ho wever, Wang (2014) argues that the uneven growth might not be the key factor, but the segmented labour market among the regions might also be responsible for the inequality and uneven growth Li and Wang (2005) and Démurger et al (2008) also make a simi lar argument in that the

Introduction 9

segmentation of the labour market has had signifi cant impact on the regional wage inequality

1.2.4 The relaxation of Hukou and the situation of migrants

In 1958 the Household Registration System was established, and as a result the rural population was rigidly restricted to migrate to cities The separated rural

and urban household registration (Hukou) has since been formed The Hukou

not only restricted migration between rural and urban regions but also divided the economic and social rights between the rural and urban residents Urban residents could get more and better social services such as education and health

than could the rural residents because of the Hukou.

As the economic reforms promoted rural growth and development, the rural residents were more able to participate in the market economy Subsequently

the relaxation of Hukou became necessary, and since 1984, rural residents have

been allowed to migrate to the towns and cities The temporary residence permit that is the legal proof of identity for migrants living in cities was fi rst introduced

in Shenzhen in 1984 In 1985 the resident identifi cation card system was

implemented Reform of the Hukou system in small towns has been going on

since 1992 In 1997 rural residents who had lived and worked in the small

towns and met certain criteria were allowed to get the urban Hukou The quotas

of the urban Hukou that the rural residents could get were abolished in 2001,

and limitations placed on migration were lessened In 2012 the State Council

put forward the new reforms for the Hukou system, which aim to help rural

residents migrate to medium- and small-sized cities and make equal the public services between urban and rural regions In 2014 the State Council announced

that it would establish a unifi ed urban and rural Hukou system to eliminate inequities in the separated Hukou system The goal of the Hukou system reforms

was that 100 million rural migrants might settle in towns and cities by 2020

The migrants are the products of the separated Hukou system; they work and live in towns and cities but have the rural Hukou There is no doubt that the relaxation of Hukou will increase the numbers of migrants (Poncet, 2006; Bao

et al., 2009), and the number of migr ants has indee d increased in recent years

(Table A1.5) Moreover, because the separated Hukou system leads to disparities

in income, social welfare and pension between urban residents and migrants

(Deng and Gustafsson, 2007), the relaxation of Hukou als o helps to improve

the employment situation, income growth and income equality signifi cantly (Li, 2013) The income growth rate for migrants was at i ts lowest in 2009 when the fi nancial crisis affected growth, while in other years the growth rate of income was more than 10 percent (Table A1.5 in the Appendix) The increase

in income may be explained by the Lewis turning point, the increased demand

of labour caused by the expansionary fi scal policies or the increment in human capital associated with the migrants However, any improvement in social security has not been obvious, and there is almost no sign of improvement in housing conditions for migrants (Li, 2013) Among the fi ve listed social insurances

10 Introduction

(Tab le A1.5 in the Appendix), the one with the highest participation rate is injury insurance, but it is less than 30 percent The problem is due to the rural and urban separated social insurance systems and the mobility of migrants There are both rural and urban pension insurance and health insurance systems As a result, migrants must face the question of which one is better for them to participate in In short, migrants’ income has grown quickly because of high economic growth, while improvements in other aspects, especially social security,

have lagged behind The reform of both the Hukou and social security systems

is necessary to resolve the problems for migrants

1.2 Methodology adopted

For this monograph we have adopted the concept of poverty beyond income and have placed emphasis on the requirement for meeting a number of funda-mental human needs These needs cannot be satisfi ed through private services alone Public interventions are necessary to ensure education, medical facilities, water supply, sanitation and so forth, which should be provided through some well-defi ned mechanism For the measurement of poverty we use composite indices bringing together different features of deprivation in quality of life to arrive at an aggregate judgment on the incidence and severity of poverty in China In this process we do not ignore the importance of income (unlike the multidimensional poverty index by the UNDP)

The theoretical framework that we have adopted is the capability approach According to Dreeze and Sen (1993, p 74),

Capability is a broad concept, and i t incorporates the concerns that are associated with what is often called the “standard of living” but goes beyond

it Living standards relate specifi cally to the richness of the person’s own life, where as a person may value his or her capability also to be socially useful and infl uential (going well beyond the pursuit of his or her own living standards)

Proponents of the theory argue that social change has to be evaluated in terms of the richness of human life resulting from it Thus the “capability approach” sees human life as a set of “doing and being” (that is “functioning”), and it relates an evaluation of the quality of life to an assessment of a capability

to function In other words, we have measured poverty by evaluating human functionings and lack of capability to function Unlike commodity-based account-ing of the quality of life, this valuation exercise is done not by focusing simply

on the commodities or incomes; we have attempted to examine the functionings and the capabilities of the individual and ensure that these characteristics are appropriately valued Thus, the measurement of poverty in this book is specifi ed

by the weights of various functionings and capabilities an individual possesses, according to how basic these are

Introduction 11

There is subjectivity in determining the list of capabilities and functionings also We have employed the help of various theories to determine the list and utilized different weights to check the sensitivity and robustness of our results

To generate an aggregative measure of poverty we use the Alkire-Foster (AF) method and the totally fuzzy and relative (TFR) approach

Three different datasets are used for this study: the China Family Panel ies (CFPS) to evaluate poverty in 2010; the China Health and Nutrition Survey (CHNS) to evaluate the poverty trend since 2000, the Rural Urban Migration

Stud-in ChStud-ina (RUMiC) and ChStud-ina Household Income Project Survey (CHIP) data since 2002 As the coverage and survey methods of these three datasets are different, our results provide a comprehensive picture of the current poverty scenario, the trend and the regional and rural–urban–migrant disparities On the basis of the results, government policies are evaluated in detail

1.3 Organisation of the book

There are seven chapters in this book After the introduction (Chapter 1), Chapter 2 discusses in detail the concept of poverty used with explanation of the methodology and the empirical application of the method available in the literature Chapter 3 compares various existing results on the extent and trend

of poverty in China and evaluates the poverty-alleviation strategies considered/implemented in the last one and a half decades by the government of China The CFPS dataset is used in Chapter 4, while in Chapters 5 and 6 the CHNS and RUMiC/CHIP survey data have been used respectively to measure poverty

at various levels Our results have been compared with the existing literature, and government policies are evaluated in light of the results Chapter 7 sum-marizes the fi ndings and concludes

Table A1.2 The four stages of China’s development

• Four special economic zones – Shenzhen, Zhuhai, Shantou and Xiamen – were established

to attract foreign direct investment (FDI) and boost exports in 1980

• The township enterprises developed in rural regions

• Diverse forms of ownership such as individual and stock economy started to emerge in urban regions

• More preferential policies including tax credit were implemented to attract FDI

• The term of land contract was lengthened to

30 years in rural regions in 1993

• The pricing system transferred to market price

• The reform of state-owned enterprises started in urban regions

• Economic openness was promoted nationwide

2001–Now The crucial

stage of

reform

• Rural preferential policies (such as subsidies) provided directly to grain growers: subsidies for purchasing fi ne seeds and subsidies for purchasing agricultural machinery and tools were promulgated and implemented to promote agricultural production

• The New Urbanization was launched

• China joined the WTO in 2001

Table A1.3 The Gini coeffi cient estimated by World Bank and NBS

by the NBS is from the report www.stats.gov.cn/tjgz/tjdt/201301/ t20130118_17719.html.

Table A1.4 Urban and rural per-capita disposable income

This chapter reviews the existing literature to provide an overview of the theories and empirical studies of multidimensional poverty This overview will justify the method used in the following chapters of this book to measure poverty in China The chapter is organised as follows Section 2.1 discusses reasons why an under-standing of multidimensional poverty is essential in a rapidly developing country like China, Section 2.2 reviews theories related to the measurement of multi-dimensional poverty, Section 2.3 presents two important problems which should

be justified before measurement, Section 2.4 shows the methods that are used

to calculate multidimensional poverty and Section 2.5 reviews some empirical studies of multidimensional poverty

2.1 Why multidimensional poverty and

not just income poverty?

Poverty has been defined as a lack of monetary indicators such as income or consumption/expenditure over a long period of time However, there are many understandings of poverty even when looked at from just an economic perspec-tive For example, Laderchi et al (2003) list four approaches to a definition of poverty: monetary, capability, social exclusion and participatory The monetary poverty approach has been widely used not only by economists but also by policymakers since Rowntree’s first scientific work in the early 20th century (Rowntree, 1901) The reason for the wide use of this approach may lie in its advantages with income or consumption variables being easy to obtain, and the methodological developments of a monetary poverty measurement make it easier

Multidimensional poverty

Concept, methodology

and application

2