Post-2020 Poverty Reduction Policy Options for the People's Republic of China

• The People’s Republic of China (PRC) is an upper middle-income country that has made tremendous progress in reducing extreme poverty and developing modern physical and economic infrastructure. Four decades of economic transformation have brought about improved living standards in urban and rural areas. The PRC has lifted over 800 million people out of extreme poverty in 40 years and aims to eradicate it by the end of 2020. Rapid economic growth and sustained anti-poverty efforts have significantly reduced extreme poverty in the People's Republic of China (PRC) and it anticipates eradicating extreme poverty by 2020. In other countries, experiences show how poverty reduction causes the emergence of new types of poverty. In the PRC, anti-poverty efforts must continue to be implemented and at the same time consider changes and potential consequences. This publication offers recommendations for the formulation of the PRC's post-2020 poverty reduction strategy based on international practices and geared toward sustaining inclusive economic growth in the country.


中华人民共和国(中国)是一个中高收入国家，在减少极端贫困和发展现代实体及经济基础设施 方面，取得了巨大成就。经过几十年的经济转型，中国城乡居民的生活水平得到显著提高。在 过去的40年中，中国已成功使8亿多人口摆脱了极端贫困，并计划在2020年底前全面消除极端贫 困。
• International experience shows that even at high levels of gross domestic product per capita, countries continue to have population segments that experience poverty and deprivation. In countries and regions that have successfully reduced poverty, new types of poverty emerge due to low incomes, unemployment, economic vulnerability, and the lack of social protection.

国际经验表明，即使人均国内生产总值(GDP)高的国家也存在贫困人口。在已成功实现减贫的 国家和地区，低收入、失业、经济脆弱性和缺乏社会保障等问题都会导致新型贫困的出现。
• A new poverty reduction strategy in the PRC should consider the importance of redefining the poverty line, treating poverty as multidimensional, developing an integrated rural-urban poverty strategy, and including the concept of vulnerability in poverty reduction policies. This note provides policy recommendations to that end.

中国的新减贫战略应当考虑重新定义贫困线，多维度实施减贫，制定一体化城乡减贫战略，并且 将脆弱性这一概念纳入减贫政策。本文为实现这些目标提供了政策建议。
• Inclusive economic growth is a key driver of poverty reduction and improved living standards. Policies to sustain inclusive economic growth are critical for the PRC in the post-2020 era. Recommendations include concerted efforts to upgrade human capital, improve access to and quality of health care and social protection, and address rapid population aging.

I. INTRODUCTION
1. The People's Republic of China (PRC) has a successful record of reducing extreme income poverty, reflecting the results of long-term rapid economic growth and a sustained commitment to anti-poverty policies. The PRC anticipates eradicating extreme poverty by 2020.

2.
After years of accelerated growth, the PRC has become an upper middle-income country (UMIC) and the world's second-largest economy. Its per capita gross domestic product (GDP) reached $10,070 in 2019. The experiences of other countries show that even at high levels of GDP per capita, countries continue to have segments of the population that experience poverty and deprivation. In countries that have successfully reduced poverty, new types of poverty emerge due to low incomes, unemployment, economic vulnerability, and the lack of insurance or social protection. Anti-poverty efforts must therefore continue.
3. Development transforms economies and societies in many ways. It is manifested in urbanization, population aging, structural transformation from agriculture and manufacturing into services, a shift from lower to higher value-added technologies, and slowing GDP growth. The PRC's poverty strategy will need to adapt to these changes.

4.
A new poverty reduction strategy should consider the importance of redefining the poverty line; treating poverty as multidimensional; developing an integrated rural-urban poverty strategy; and including vulnerability in poverty reduction policies, recognizing that inclusive economic growth remains a key driver of poverty reduction and improved living standards. This policy note offers recommendations based on international practices for the formulation of a post-2020 poverty reduction strategy in the PRC. 6. Poverty should be redefined from an absolute to relative standard to reflect changing social norms. Several countries have taken this step, such as Romania in 2006. The PRC should develop a new monetary poverty line that is based on median income (or expenditure). 7. One option is to set the poverty line as a percentage of the median income or expenditure, which is the standard practice in the European Union; Japan; Taipei,China; and Turkey. The percentages applied are most commonly 50%-60% of the median.

II. REDEFINING THE POVERTY LINE
8. Another option is to adopt a weakly relative poverty line in which the threshold is equal to the sum of several components, some of which are absolute (e.g., the cost of purchasing basic necessities), and others are relative and set as a percentage of median expenditure (e.g., housing). This approach is used in India where it demonstrated improved accuracy in the measurement of households' income in countries that are geographically large and have substantial income variation.

III. DEVELOPING AN INTEGRATED RURAL-URBAN POVERTY STRATEGY
9. The PRC's poverty reduction efforts have so far focused on rural areas, given that most of the population and extreme poor were rural. However, with the urbanization rate at about 60%, a new approach is needed. Urbanization brings new forms of poverty and disadvantage. In the PRC, migrants are at particular risk as the household registration system or hukou limits their access to public services and housing.
10. Further relax the hukou system. Further relaxing the hukou is necessary for migrant workers to access basic public services. However, it is not sufficient to integrate rural migrants in urban societies. Specific programs to facilitate integration need to be in place. Useful lessons can be learned from successful programs such as in India and Canada where government and nongovernment agencies support a package of services including education for children, skills training for adults, job placement, childcare and housing assistance, and social and cultural activities to help newcomers connect with the community. 11. Develop affordable housing. Urban poverty has distinct features that require specific support. One of them is the lack of affordable housing, which results in homelessness, inadequate or lowquality housing (including poor access to water and sanitation), insecure housing (rental or informal), and remote housing in peripheral areas. Housing problems are exacerbated by high and rising housing prices in most cities in the PRC. Housing policies should adopt an integrated approach in connecting the provision of low-income housing to social programs and addressing the new housing needs arising from demographic and social change. In this process, it is important to clearly define targets and eligibility criteria to enhance policy effectiveness.

IV. INCLUDING MEASURES TO ADDRESS VULNERABILITY IN POVERTY POLICY
12. Once extreme poverty is no longer the focus of poverty policy, the emphasis will shift from lifting people above the poverty line to keeping people from falling back into poverty. Many households in the PRC, both poor and nonpoor, lack economic security. Vulnerability to poverty is an important issue for the PRC because in the near and medium-term, a significant share of the population will remain clustered not far above the poverty line, and even a minor shock could result in destitution.
13. Governments and international organizations recognize the importance of monitoring the population's vulnerability to poverty, but established systems for regularly monitoring vulnerability are few. These systems generally follow one of three approaches: (i) identifying and monitoring groups that have higher poverty rates or correlates of poverty; (ii) using a higher poverty line, also referred to as a risk-of-poverty line; and (iii) measuring household-asset resilience (threshold asset level required to support consumption above the poverty line). These approaches are straightforward and have relatively modest data requirements.
14. Adopt a measure of vulnerability to poverty. A two-step approach is proposed for the PRC. The first step is to adopt a measure of vulnerability to poverty line based on the Organisation for Economic Co-operation and Development (OECD) social protection system review, which sets vulnerability to poverty at 1.5 times the national poverty line. This will provide critical information on the number of near poor who may be vulnerable given their proximity to the poverty line. The second step is for the PRC to implement an extended poverty line based on vulnerability criteria. 2 This improves on the OECD approach because it bases the vulnerability line on observed levels of risk faced by households. This method requires robust panel data, which can be provided by the National Bureau of Statistics annual household income and expenditure survey.
15. Treat poverty and vulnerability as multifaceted. Vulnerability is multifaceted and requires multipronged interventions. They can include government social insurance and social assistance programs, such as cash transfers, unemployment insurance, health insurance, disability insurance, and support to the elderly poor. Social assistance programs should be complemented by efforts to promote the development of markets and legal and regulatory systems. Markets for property, health, accident, and life insurance can be strengthened and expanded. The Government of the PRC can also adopt measures that support healthy, widely accessible financial and asset markets that make it easier for all households to safely borrow, save, and accumulate assets.

V. PROMOTING ECONOMIC GROWTH AND INCLUSIVE DEVELOPMENT
16. As countries reach UMIC status, the nature of inclusion evolves. Development brings major structural changes in the economy. Production shifts from the primary to the secondary and further to the tertiary or services sector. Services are characterized by more informal, part-time employment than manufacturing and industry. Moreover, within sectors, technology shifts from lower to higher value-added forms of production. New technologies, such as computers, digital technologies, and robotics, can displace labor. In this context, inclusive development requires special attention to the security of employment-for example, through unemployment insurance and programs that provide opportunities for workers to retool and learn higher-level skills.
17. The rate of economic growth decelerates as economies mature. Slowing growth challenges inclusive development. When growth slows, the trade-offs between policies and interest groups become starker, making policy choices more difficult. A key component of the inclusive growth agenda are policies to sustain economic growth. These should focus on (i) increasing productivity, including through technological change, research and development; (ii) improving human capital; (iii) reducing economic distortions and imbalances; (iv) investing in productive infrastructure, such as transportation, power, information and communication technology; (v) improvements in institutional infrastructure, such as in legal and financial systems; (vi) addressing demographic change; and (vii) ensuring that the benefits of growth are shared evenly. Some specific recommendations are provided here.
18. Develop human capital. In UMICs, economic activities require higher levels of knowledge and a skilled workforce. Those who do not have the required knowledge and skills will lack the capability to participate fully in the labor market. An inclusive development agenda therefore requires investment in education and training at various levels from early childhood to tertiary, and including lifelong learning for employment mobility. The following measures can be considered: (i) Invest in early childhood development. Experiences during the first years of life have long-term effects on the brain and body. The PRC has not yet achieved universal access to early childhood education; uneven access to opportunities can cause a lifetime inequality of capabilities and opportunities. A high priority should therefore be placed on developing programs to support early childhood education, nutrition, and health, especially for disadvantaged groups. These programs could include support for parenting, health and nutrition interventions, improvements in food and water safety, and the early identification and treatment of hearing and vision problems.

观察与建议
(ii) Improve educational attainment and quality at secondary and tertiary levels. Rates of progression to secondary and tertiary education have risen markedly in the PRC. However, some children still do not complete secondary school, and many do not continue to postsecondary education. In high-income countries, those without post-secondary qualifications are most likely to face job loss, long-term unemployment, and precarious, low-paid jobs. A contributing factor to lack of progression is poor-quality schools. Measures are needed to improve the quality and content of teaching, with a focus on low-income groups, and closing the access and quality gaps between rural and urban areas. 20. Against this backdrop, steps should be taken to strengthen and expand health insurance so that all members of the population have access to quality medical care. Investment is also needed in training the health workforce and in health care systems so that a fuller range of services and treatments are widely available. Location affects access to health care since medical services, especially for complex diseases, such as cancer and cardiovascular disease, tend to be concentrated in larger cities. Mechanisms are needed to connect people who live in rural areas and smaller cities to medical centers in other locations.
21. Address aging. The transition to middle-or upper-middle income status is often accompanied by demographic change. Rapid population growth early in the development process is followed by declining fertility, creating social and economic challenges associated with an aging population.
22. From the perspective of inclusive development, such demographic shifts create challenges. The elderly need caregiving, housing, and financial support. Traditionally, this support in the PRC has been the responsibility of family and community. Migration and urbanization have caused dislocation and weakened these traditional ties. Moreover, the elderly have fewer children on whom to rely for support. Society-wide, the proportion of younger people is shrinking, creating challenges in financing pension and health insurance systems. Younger residents face an increased burden both in their personal responsibilities to their parents and their required social insurance contributions.
23. The challenges of population aging go beyond pensions. They include the need for an elderly care system, appropriate housing, and health care. All these needs place a growing burden on the fiscal system. Governments must therefore engage in long-term, advance fiscal planning and pursue fiscal reforms on both the revenue and expenditure sides.
24. The population aging challenge also has a bearing on sustaining economic growth due to the declining working-age population and associated labor shortages. Governments can respond by taking steps to increase the use of available labor-for example, adopting family-friendly policies that encourage women's labor force participation and reforming retirement policies to keep people in the workforce longer. Productivity policies for research and development, technological change, and investment in higher value-added sectors are also relevant. Here, countries that are further along in the population aging process, such as Germany and Japan, may provide lessons and examples of effective policies.
25. Include the excluded. As countries grow and attain upper-middle and high-income status, certain groups may be excluded and left behind. The factors causing this can be complex, and often the reasons differ from group to group. A necessary first step is a detailed investigation to identify what groups experience exclusion and to understand their specific challenges based on data on income and consumption, employment, education, health, housing, and other socioeconomic indicators.
26. Because of their small size, some excluded groups may not be adequately captured in standard surveys, so special studies may be required. International experience shows that extensive consultation and participation is necessary to design effective solutions. On this basis, multidimensional interventions for excluded groups can be designed and implemented.