China’s Two Development Miracles

And the lessons to be learnt

Observing the entire course of China’s reform and opening-up in the past four decades, one concludes that the country has performed not only an economic growth miracle but also a social stability miracle – the former is the primary reason for the latter. One of the best manifestations of such development has been China’s poverty alleviation results. In 1981, China’s population accounted for 22.4 percent of the world population but Chinese people were living on less than $1.91 and in 2011 they made up 46.4 percent of the world poor. In 2018, China’s population accounted for 18.4 percent of the world total, but there were hardly any people in China who were living in absolute poverty.

From 1978 to 2018, the annual growth rate of China’s GDP in real terms was 9.4 percent, not only the highest in the world during that period, but also a growth rate unseen in any other period. Such rapid growth allowed China to rapidly catch up with developed countries in improved standards of living.

According to the World Bank’s income categorization based on per capita GDP, China was among the poorest in the low-income group of countries in 1978 when the reform and opening-up policy was launched. Benefiting from its demographic dividend and taking advantage of globalization during that period, China crossed the threshold to be a lower-middle income country in 1993 and the threshold of an upper-middle income country in 2009. In 2018, China’s per capita GDP reached $9,771, which is close to the threshold of a high-income country.

China did not bank on trickle-down economics, which assumes the outcomes of economic growth, technological advancement and globalization are automatically shared by all the people. Its economic growth pattern over the past 40 years has been defined by a resource-allocation process that has ensured simultaneous employment expansion, rising incomes and productivity improvement. Also, social security programs have been established and perfected as labour market development raised demands for stronger social protection. Last but not the least, very early on, the central government initiated a rural poverty alleviation plan with specific goals at each stage of its implementation.

All these have made China the greatest contributor to poverty reduction in the world and an outstanding role model for poverty alleviation. According to World Bank data, from 1981 to 2015, the number of people living in poverty decreased from 1.89 billion to 753 million and the number of people living in poverty in China was reduced from 877.8 million to 9.6 million. That means, China contributed 76.18 percent to the reduction of world poverty during this period, apart from enriching the experience of fighting poverty. Since 2015, China has set a higher standard than the World Bank as it continues its rural poverty alleviation efforts. In 2018, the number of Chinese rural poor was 16.6 million, according to China’s higher standard, and the poverty rate was as low as 1.7 percent.

China’s success in poverty reduction is an example of applying a people-oriented approach to development, one that does not exist in the conventional textbook. Countries implementing poverty alleviation strategies often encounter the phenomenon of diminishing effects in their poverty reduction efforts. Some scholars and practitioners consider it to be a law of poverty reduction. As the poverty alleviation exercise succeeds and the number of poor people reduces to a relatively small fraction of the population, policy effects tend to fade. This is because in the later stages of poverty alleviation efforts, the remaining poor usually have particularly disadvantageous features. These could include disability, illness, elderliness, and poor education or unfavorable geographic conditions of residence, production, and ecology. And all these prevent the authorities from completely eliminating absolute poverty.

As a result, in many countries, poverty reduction efforts get stuck in the last mile. In the area of physical investment, when investors encounter diminishing returns on capital, it is considered rational for them to stop injecting more money into a project. The fundamental difference between an investment project and a poverty reduction program is that in the latter people are the ultimate development goal. Therefore, by upholding its people-centered development philosophy and being resolved to break the “law” of diminishing effects of poverty reduction, China’s central government has solemnly pledged to eliminate poverty in rural areas by 2020.