The majority of poverty in the People's Republic of China (PRC) is rural poverty. Decades of economic development has reduced urban extreme poverty. According to the World Bank, more than 850 million Chinese people have been lifted out of extreme poverty; China's poverty rate fell from 88 percent in 1981 to 0.7 percent in 2015, as measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms, which still stands in 2022.
The Chinese definition of extreme poverty is more stringent than that of the World Bank: earning less than $2.30 a day at purchasing power parity (PPP). Growth has fueled a substantial increase in per-capita income, lifting people out of extreme poverty. China's per capita income saw a five-fold increase, from $200 to $1,000 between 1990 and 2000. The same rate of increase was observed from 2000 to 2010, bringing the per capita income up to $5,000. This moved China into the ranks of middle-income countries.
Kent Deng writes in 2000 that by 1978, two thirds of China's rural population had a living standard lower than that of 1958, and under Mao, China became impoverished to a greater extent than India and USSR. Almost half of households lived in poverty in 1978, two years after Mao Zedong's death. It has been argued that unlike in Khrushchev's USSR or even Kim Il Sung's North Korea, under Mao, poverty reduction was not given attention to, and the government instead engaged in "campaigns of class struggle" to distract the people, as poverty perpetuated itself. Nevertheless, under Mao, "China's government provided food and shelter at little or no cost. This meant US$1.90 was able to buy more basic necessities in China than in comparable capitalist countries." According to one measurement, the percentage of the population of China living in extreme poverty fell steadily during most of the time that Mao was in power, although other measurements present a more mixed picture.How Was Life? Volume II New Perspectives on Well-being and Global Inequality Since 1820 By OECD, 2021, P.207 Prior to the 1978 market reforms, poverty in China was already considered less severe than in other developing nations. According to one journal in 1981, "the poorest of China's poor are better fed, better educated and healthier than the poorest in India and Pakistan, which makes these Chinese less poor." Life expectancy in China, estimated by the World Bank at 64, was 3 years higher than the average for middle-income countries, while studies found that even before 1978 there was less malnutrition in China than other poor nations, while also having higher rates of literacy and school enrolment and a far lower rate of infant mortality.The Vancouver Sun 30 Jun 1981 'China among richest of world's poor' According to one measurement, the percentage of people in rural areas living in poverty fell from 30.7% in 1978 to 3.5% in 2000.Forty Years of Renovating the Income Distribution in China Experience, Theory and Expectation By Heng Quan, Publisher: Springer Nature Singapore, 2021, P.103-104
Between 1990 and 2005, China's progress accounted for more than three-quarters of global poverty reduction and was largely responsible for the world reaching the UN millennium development target of halving extreme poverty. This can be attributed to a combination of a rapidly expanding labor market, driven by a protracted period of economic growth, and a series of government transfers, such as an urban subsidy, and the introduction of a rural pension. The World Bank Group said that the percentage of the population living below the international poverty line of $1.9 (2011 PPP) fell to 0.7 percent in 2015, and the poverty line of $3.2 (2011 PPP) fell to 7% in 2015. The percentage of China’s population estimated to be chronically undernourished has also fallen significantly, from 46% in 1970 to 5% in 2010.Geographies of Agriculture Globalisation, Restructuring and Sustainability By Guy Robinson, Publisher: Taylor & Francis, 2014, P.172
At the end of 2018, the number of people living below China's national poverty line of ¥2,300 (CNY) per year (in 2010 constant prices) was 16.6 million, equal to 1.7% of the population at the time. On November 23, 2020, China announced that it had eliminated absolute poverty nationwide by uplifting all of its citizens beyond its set ¥2,300 per year (in 2010 constant prices), or around ¥4,000 per year in 2020. The World Bank has different poverty lines for countries with a different gross national income (GNI). With a GNI per capita of $10,610 in 2020, China is an upper middle-income country. The poverty line for an upper middle-income country is $5.5 per day at PPP. As of 2020, China has succeeded in eradicating absolute poverty, but not the poverty defined for upper middle-income countries which China belongs to. China still has around 13% of its population falling below this poverty line of $5.50 per day in 2020. In 2020, premier Li Keqiang, citing the National Bureau of Statistics (NBS) said that China still had 600 million people living with less than 1000 yuan ($140) a month, although an article from The Economist said that the methodology NBS used was flawed, stating that the figure took the combined income, which was then equally divided.
Overview Since Deng Xiaoping began instituting market reforms in the late 1970s, China has been among the most rapidly growing economies in the world, regularly exceeding 10 percent GDP growth annually from 1978 through 2010. This growth has led to a substantial increase in real living standards and a marked decline in poverty. Between 1981 and 2008, the proportion of China's population living on less than $1.25/day is estimated to have fallen from 85% to 13.1%, meaning that roughly 600 million people were taken out of extreme poverty. At the same time, this rapid change has brought with it different kinds of stresses. China faces serious natural resource scarcity and environmental degradation. It has also seen growing disparities as people in different parts of the country and with different characteristics have benefited from the growth at different rates.
Starting from the pre-reform situation, some increase in income inequality was inevitable, as favored coastal urban locations benefited from the opening policy, and as the small stock of educated people found new opportunities. However, particular features of Chinese policy may have exacerbated rather than mitigated growing disparities. The household registration (hukou) system kept rural-urban migration below what it otherwise would have been, and contributed to the development of one of the largest rural-urban income divides in the world. Weak tenure over rural land also limited the ability of peasants to benefit from their primary asset.
Aside from income inequality, there has also been an increase in inequality of educational outcomes and health status, partly the result of China's decentralized fiscal system, in which local government has been primarily responsible for funding basic health and education. Poor localities have not been able to fund these services, and poor households have not been able to afford the high private cost of basic education and healthcare.
The large trade surplus that has emerged in China has exacerbated the inequalities, and makes them harder to address. The trade surplus stimulates the urban manufacturing sector, which is already relatively well off. It limits the government's scope to increase funding for public services such as rural health and education. The government has been trying to rebalance China's production away from investment and exports towards domestic consumption and services, to improve the country's long-term macroeconomic health and the situation of the relatively poor in China.
Recent government measures to reduce disparities include relaxation of the hukou system, abolition of the agricultural tax, and increased central transfers to fund health and education in rural areas.
Poverty reduction
+ Poverty reduction in China by various measures Poverty headcount ratio at $1.90 a day(2011 Int$ PPP) (% of population) Poverty headcount ratio at $3.20 a day(2011 Int$ PPP) (% of population) Poverty headcount ratio at $5.50 a day(2011 Int$ PPP) (% of population) 1990 66.2 90 98.3 2010 11.2 28.5 53.4 2015 0.7 7 27.2 2019 0.1 1.7 15.8
China's lifting of more than 800 million people out of extreme poverty since the late 1970s has been the largest global reduction in inequality in modern history.
China has maintained a high growth rate for more than 30 years since the beginning of economic reform in 1978. This sustained growth has generated a huge increase in average living standards. 25 years ago, China had many characteristics in common with the rest of developing Asia: large population, low per capita income, and resource scarcity on a per capita basis. But in the 15 years from 1990 to 2005, China averaged per capita growth of 8.7%
The whole reform program is often referred to in brief as the "open door policy". This highlights that a key component of Chinese reform has been trade liberalization and opening up to foreign direct investment, but not opening the capital account more generally to portfolio flows. China improved its human capital, opened up to foreign trade and investment, and created a better investment climate for the private sector.
After joining the WTO China's average tariffs dropped below 10%, and to around 5% for manufactured imports. It initially welcomed foreign investment into "special economic zones". Some of these zones were very large, amounting to urban areas of 20 million people or more. The positive impact of foreign investment in these locations led to a more general opening up of the economy to foreign investment, with the result that China became the largest recipient of direct investment flows in the 1990s.Lardy, Nicholas R., 2001. The Economic Future of China.
The opening up measures have been accompanied by improvements in the investment climate, particularly in cities in the coastal areas, where the private sector now accounts for 90% or more of manufacturing assets and production. In 2005, the average pretax rate of return for domestic private firms was the same as that for foreign-invested firms. Local governments in coastal cities have lowered loss of output due to unreliable power supply to 1.0% and customs clearance time for imports has been lowered in Chinese cities to 3.3 days.
China's sustained growth fueled historically unprecedented poverty reduction. The World Bank uses a poverty line based on household real consumption (including consumption of own-produced crops and other goods), set at $1 per day measured at Purchasing Power Parity. In most low-income countries this amount is sufficient to guarantee each person about 1000 calories of nutrition per day, plus other basic necessities. In 2007, this line corresponds to about 2,836 RMB per year. Based on household surveys, the poverty rate in China in 1981 was 63% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period.
This poverty reduction has occurred in waves. The shift to the household responsibility system propelled a large increase in agricultural output, and poverty was cut in half over the short period from 1981 to 1987. From 1987 to 1993 poverty reduction stagnated, then resumed again. From 1996 to 2001 there was once more relatively little poverty reduction. Since China joined the WTO in 2001, however, poverty reduction resumed at a very rapid rate, and poverty was cut by a third in just three years.