The following is from a to-be-published book by Xie Xin, worthwhile reading --" The Myth of Poverty Reduction
World Bank and the majority of the economic profession say that China is the huge success story in reducing poverty. The number of people living under extreme poverty (1$ per day) in China has been reduced from 250 million in 1978 to 30 million in 2000, making China one of the few countries well ahead of its poverty reduction target in Millennium Development Goals. In 1999, the World Bank raised China’s classification from a “low-income country” to a “lower middle-income country”, when income per capita surpassed the US $755 cut-off point for low-income countries.
However, in 2004, China’s State Statistics Bureau acknowledged that the number of people living in extreme poverty had increased to 29 million in 2003 from 28.2 million in 2002 despite the rapid GDP growth. Virtually all the extreme poor lived in rural areas. Chinese government blamed the increase to hazardous weather conditions during the year, thus dismissing it as an abnormal blip in the optimistic long-term trend. However, it is noteworthy that China officially joined WTO in December 2001, marking a further step towards integration to world economy. The short sequence of events makes one wonder: is this just a coincidence, or does China’s WTO accession, especially the concessions regarding agriculture sector has anything to do with the increased poverty?
To explore such question, one needs to look into not only the data points over the years, but also the assumptions behind the data. World Bank has generally defined poverty as less than two dollars per day and extreme poverty as less than one dollar per day. China statistics bureau set the line of extreme poverty at annual income 636 Yuan for 2003. The number is adjusted annually and it is supposed to be more or less comparable with $1 per day in terms of purchasing power parity. However, how real are these artificial criteria? Does increase GDP and average income always translate into a higher quality of life? Does a lower number automatically mean the frustration and stigma of poverty?
With such questions in mind, let’s examine what happened to Chinese people in the reform era in terms of quality of life indicators such as equality, health care and education.
EQUALITY
In less than thirty years, China transformed from one of most egalitarian countries to one of most unequal in the world. In early 1980s, the income percentage of the top decile group was less than 20%. In 1995, the top decile group appropriated 33.7% of income, while the bottom decile only 1.87% (from Khan & Riskin, ”Inequality and poverty in China in the age of globalization”). This disequalizing trend continues. In 2005, State Statistics Bureau announced that the top decile group now takes 45% of the wealth, while the bottom decile only 1.4%. The Gini ratio (a measure of inequality) is over 0.4, a level generally considered high enough to threaten social stability.
One common critique of the pre-reform era was that the household registration system treated the rural population as second-rate citizens and limited their freedom of movement. Nowadays, the huge army of migrant workers is the living proof of high mobility. However, the ever-enlarging rural-urban gap demonstrates that it is mostly a freedom to experience inequality and exploitation. According to estimates by State Statistics Bureau, the ratio of urban vs. rural per capita income was 2.19 in 1988, 2.72 in 1995, and 3.23 in 2003. In several interviews, deputy minister Qiu Xiaohua pointed out that if the non-cash subsidies enjoyed by urban residents were taken into account, the real income gap could be as high as 6:1, the highest rural urban gap in the world.
The rising tide is certainly lifting the yachts much more than other boats, if other boats were lifted at all.
HEALTH CARE
Before 1980, China’s health care system had been developed under the socialist planned economy. By 1980, more than 90% of the population was covered by state or collective health care system. From 1949 to 1980, average life expectancy increased from 35 years to 67 years; infant mortality rate dropped from more than 200 per thousand to 39 per thousand. It was one of the fastest improvements witnessed in the world during the same period. By the late 1970s, China’s health indicators were not only much better than the average of low income countries, but also better than the world average or average of middle income countries. In WHO’s 1978 Alma Ata Conference “Health for all by the Year 2000”, China’s primary health care system was featured as model for the world.
Unfortunately, despite spectacular GDP growth in more than two decades, such brilliant performance has not continued or even being maintained in many aspects. Since 1980, the health care system went through several rounds of market-oriented reform. From 1980 to 2003, health care expenditure skyrocketed 15 times even after inflation was taken into account (from 14.32 billion Yuan to 662.33 billion Yuan). Meanwhile, percentage of government contribution and collective contribution (from state owned enterprises, collective owned enterprises and rural cooperatives) decreased from 36.2% and 42.6% to 17.2% and 27.3% respectively. Thus the share of individual contribution increased from 21.2% to 55.5%. Even the dwindling government funds are distributed very unequally. In 1998, per capital government spending on health care were 130 and 10.7 Yuan respectively for urban and rural sector. Health care insurance now covers about half of the urban population and only 10% of the rural population. As all clinics and hospitals are increasingly pressured by profit motive, more and more cost effective preventive measures are being replaced by expensive and not always necessary treatments. It is estimated that due to price concern, about half of urban patients self medicate, while half of rural patients forgo any kind of treatment at all. Once controlled diseases like tuberculosis and schistosomiasis are having a strong coming-back. New diseases like AIDS spreads rapidly through activities like illegal blood selling and needle sharing. As cited by Khan and Riskin in “Inequality and Poverty in China in the Age of Globalization” P95, “World Bank analyses indicate that the national under-five mortality rate, regarded by UNICEF as the single best indicator of social development because it encompasses so many other indicators, stopped declining in the early 1980s and stagnated until 1991, and that the percentage of rural children with very low height for age (a key indication of malnutrition) increased from 1987 to 1992.” In a 2000 World Health Report, China ranked 188 out of 191 countries in terms of fairness in financial contribution to health and 144 out of 191 countries in overall performance of the health care sector.
Instead of continuing as a leader of health care performance, China has been a leader in the worldwide trend of health care financing privatization. The consequence is nothing but gloom. In July 2005, Development Research Center of the State Council released an official document admitting the market-oriented health care reform was not a success. Some authors of the document commented that China’s health care system is having an “American disease” with following symptoms: skyrocketing cost, unfair access, low efficiency and stagnant health indicators.
EDUCATION
Public education especially primary and secondary education enjoyed significant growth in the pre-reform era. Adult illiteracy rate dropped from more than 80% from pre-1949 level to 33% in 1980. In 1978, enrollment rate for elementary school was above 95% and advancement rate from elementary school to junior high was 87.5%. Government or collective funds supported virtually all levels of education, while only token fees were charged from the parents.
The same as health care, education cost has skyrocketed in last 20 years while the share of private financing increases significantly. It is estimated that four year of college would cost a family 40,000 Yuan, more than 13 times of average per capita rural income. Even for primary and secondary education, private sources have to pay 44% of the cost (1999 data), much higher than that of all OECD countries and many developing countries. Many rural children, especially girls, are being kept out of school as their families find it difficult to pay the increasingly steep fees. In 1999, public spending on education was only 2.79% of GDP, in comparison to 4.38% of the world average.
The government funding is distributed quite unevenly as well. 77% of the educational investment is allocated for the urban areas. Higher education is getting bigger share of the funding at the cost of basic education. Take year 1999 and 2000 as an example, government allocation in primary education dropped from 36.1% to 32.6%, while the share of tertiary education increased from 15.6% to 24.0%. From 1978 to 1990, advancement rate from primary school to junior high decreased from 87.5% to 74.6%. In some areas, the advancement rate from junior high school to senior high school is as low as 25% though college education has exploded in last several years. The elitist approach also affects the content of education profoundly. It is increasingly geared towards book knowledge and college entrance exam while detached from reality and community. Education has degenerated into a means to climb up the social ladder only while its function to improve people’s daily life withers away. Especially for many poor families, education has become a risky gamble for chances of upward social mobility instead of being a rational investment as well. There are more and more incidents where young kids commit suicides when their families cannot come up with tuition fees or when they fail some important exams.
Besides equality, health care and education, the mounting environmental crisis also raises serious questions about who is benefiting and sustainability issues. The environmental problem will be addressed in more details in other part of the report. The above picture already provides another angle to explain why China has been a darling for investors in recent years: as more and more cost is externalized, higher return is being achieved for the capital. Besides the top 10% -20% of the population who are joining the global consuming elites, average Chinese people are no winners in this process. In 1978, China was a country with low wages but high benefits: education, health care and housing were provided to urban residents at little or no cost; majority of rural residents enjoyed public education and health care as well. Today’s China is a country with low wages and low benefits, a leader in the global race to the bottom. While people have to pay more and more for public goods, even their share of the pie is getting smaller: in late 1970s and most of 1980s, the total salary vs. GDP was around 16%, since then it has steadily decreased to 12% in 2003.
China has undergone such profound changes since 1978 that the meaning of money and poverty has transformed beyond what is normally captured by numbers like per capita income and inflation index. When I grew up in China in early 1970s, my family lived under one dollar per person per day. Even if all subsidies were taken into account, the total could hardly be two or three dollars per day. It was a life with little luxury and some inconveniences. But it was a life of frugality, sufficiency, dignity and rich community experience—if we have to put a price tag on things, just the free baby-sitting offered by the neighbors alone could easily translate into a few hundred dollars per month in western standards. Those were by-gone years. Today’s China is increasingly dominated by money, fierce competition and social Darwinism. Living with less than one or two dollars per day is indeed a horrible life with all the problems of absolute and relative poverty.
Let’s come back to the question raised at the beginning: what does the increased poverty population from 2002 to 2003 mean? Does it have anything to do with China’s WTO accession? With above examinations of quality of life indicators (education, health, equality etc.), it is no longer critical whether this is an abnormal data point or not as the legitimacy of the whole poverty reduction trend is called into question, or at least not as brilliant as presented by World Bank. After all, what kind of poverty reduction is it when more and more people find it difficult to afford basic health care and education? With more and more aspects of life being commodified and monetized, of course we see growing GDP and per capita income; with the top 10-20% getting an ever-enlarging share and their success stories dominating the media space, of course the good news are overwhelming. But that is hardly a measure of real improvement for the mass. Instead of being an abnormality (due to WTO, bad weather or whatever reasons), the 2003 data gives us an opportunity to look into the real issues behind the artificial numbers."
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