Alleviating Poverty in China Still a Work in Progress

China claims to have lifted 620m people out of poverty since reforms started  in the 1970s. Even when using the World Bank’s number of 500 million, China has done a great job of alleviating poverty. However, much work remains to be made to consider China’s reforms an absolute success.

China’s poverty relief programs leave much to be desired. For instance, the central government designs 592 villages or counties as impoverished. But the criteria for classifying a village or county are complex and often revised. They include comparisons of poverty rates and average incomes with those of the province, adjustments for inflation, quotas on the number of villages that may count as poor and a ban on including villages that own collective enterprises, whatever their income level. Although the total number of places designated as impoverished has never moved from 592, those that compose the list are constantly changing.

Once a place is designated as impoverished it enjoys many subsidies from the national government. In 2012, when the list was last updated, Xinshao county in Hunan in south-central China was added. Local officials used the county’s official website to trumpet this “exceptional good tidings” after two years of “arduous efforts” and “untold hardships”. A large roadside board added its “ardent congratulations”. After nationwide criticism, the officials accepted that their words had been badly chosen. But their cheer was understandable: the official designation was worth an extra 560m yuan for the county each year from the central government.

The perverse incentives this system causes are not the only problem. The subsidies hardly succeed to substantially improve the livelihood of everyday citizens. Although they’re told that the money goes to the local credit union where they can apply for loans, only the politically connected are actually able to borrow money. Additionally, government officials find a way to spend the remainder of the subsidies on themselves rather than on improving the average citizen’s welfare. For example, state television reported on two counties, one in Ningxia and one in Hubei, where local governments spent 100m yuan each on new headquarters.

China’s is currently unable to efficiently provide a safety net for its most unprivileged citizens. This is a growing concern that will define China’s growth model towards the future. If this problem is not addressed the Communist Government won’t be able to legitimate its hold on power by pointing out to economic success at it has in the past.

Source: http://www.economist.com/news/china/21647654-how-much-has-flagship-official-scheme-played-chinas-impressive-record-reducing