EXECUTIVE SUMMARY

A. THE REMAINING CHALLENGE

　　Twenty Years of Poverty Rediiction. China is widely recognized for its achievements in reducing absolute poverty since the adoption of a broad program of rural economic reforms beginning in 1978. Broad participation in the subsequent reform-driven economic growth, together with a well-funded national poverty reduction program, have brought about a tremendous reduction in rural absolute poverty during the past twenty years. Official estimates indicate that rural poverty declined from roughly 260 million poor in 1978 to 42 million in 1998, or from one-third to about one-twentieth of total rural population. These official estimates are based on the government's austere poverty line equivalent to $0.66 per day (in constant 1985 purchasing power parity dollars).

　　The World Bank has developed an international poverty standard of SI .00 per day (in 1985 purchasing power parity dollars) for cross-country comparisons of poverty. Estimates based on this somewhat less severe poverty line indicate substantially　greater numbers of absolute poor in China in all years, but do confirm the　continuing remarkable decline in poverty during the 1990s. As shown in Figure I, the international standard indicates that by end-1998 a much larger share of the rural population about 11.5 percent or some 106 million people@remained in poverty.
　　The government's austere poverty line was a useful standard when the incidence of　extreme poverty was greater, and helped to target available poverty reduction funding to those　most in need. However, the government's poverty line may no longer be such an effective tool in　identifying the potential beneficiaries of national poverty reduction efforts since such a small　share of the population now have income levels below it, and large numbers of transient poor　have income levels just slightly greater than it. In addition, those with incomes consistently below　the poverty line suffer extreme hardship and deprivation. Consequently, China should consider　whether the international standard may now be a more appropriate measure to gauge the extent　of poverty and guide its poverty reduction program.
　　The Chinese government has a strong commitment to poverty reduction, and most
government ministries and agencies have special poverty reduction responsibilities and projects.　The State Council's Leading Group for Poverty Reduction (LGPR) was established in 1986 in　part to provide greater coherence to these many poverty reduction initiatives and, in particular, to　expedite economic development in the poor areas. LGPR has emerged as the principal advocate　of China's rural poor, and is now the key agency responsible for coordinating the nation's more　than US$2 billion in annual funding for poverty reduction programs. This funding is organized
under China's "8-7 Poverty Reduction Plan" (8-7 Plan), which was established by LGPR in 1994　to overcome remaining absolute poverty in the nationally-designated 592 poor counties. The scale　and funding of China's 8-7 Plan poverty reduction program, and the sustained dramatic reduction　of absolute poverty over the last twenty years of reform, are exemplary by the standards of any　developing country.
　　Current Challenge. Even with the successes to date, there are still more than 100 million　rural absolute poor, and in most cases this remaining poverty is both severe and relatively　intractable. In the past, the broad incidence of poverty made it possible to achieve substantial　reductions in poverty through general economic growth and through programs that were more　broadly targeted. At present, the majority of the rural poor are concentrated in resource deficient　areas, and comprise entire communities located mostly in upland sections of the interior
provinces of northern, northwestern and southwestern China. Although these poor have land use　rights, in most cases the land itself is of such low quality that it is not possible to achieve　subsistence levels of crop production. Consequently, in most years the poorest of the poor　consume grain and other subsistence foods beyond their own production levels. The poorest　households are typically those further disadvantaged by high dependency ratios, ill health and　other 　difficulties. Minority peoples and peoples with disabilities are known to represent a highly　disproportionate share of the rural poor. Poverty also exacerbates society-wide problems of lower　rates of female participation in education, higher relative female infant mortality rates, and higher　rates of maternal mortality. Available evidence suggests that the severity of the remaining poverty　worsened somewhat during much of the 1990s. As shown in Table I below, the squared poverty
gap index increased during the 1990s, and in 1998 remained considerably greater than in 1990.
　　The educational, health and nutritional status of these remaining absolute poor is　deplorable. As many as half of the boys in many of China's poorest villages and, particularly in　some minority areas, nearly all of the girls do not attend school and will not achieve literacy.　Infant mortality rates and maternal mortality ratios in very poor counties exceed 10 percent and　0.3 percent respectively (or at least 50 percent to 100 percent greater than the national average),　and are greater yet in the poorest townships and villages. Incidence of several infectious and　endemic diseases, including tuberculosis and iodine deficiency disorders, is concentrated in poor　and remote areas. Roughly half of children in households at or below the absolute poverty line are　at least mildly malnourished (stunted), and iron, vitamin A, and other micronutrient deficiencies
remain a severe problem among the poor. As many as 90 percent of poor children suffer chronic　worm infections.

\a The official government poverty Sine is the equivalent of $0.66 per day.
Note: Both sets of estimates are derived from per capita income data from the State Statistical Bureau's annual sample survey of rural households.
Source: Author's calculations.

　　Regional Concentration of the Poor. The reduction in rural poverty has been greatest ir　China's coastal and central regions where rural economic growth has been greatest. Many ofth　rural poor in 1978 resided in less remote and less hilly areas in the coastal and central regions, when　increased application of fertilizer, irrigation, better seed and other modern inputs could bring abou
rapid productivity gains, and so were better able to participate in the rapid agricultural growth ofth　reform period. Most of the residual poor have remained trapped in more remote upland areas when　agricultural productivity gains have proven far more problematic. Available evidence shows thai　this trend has continued in the 1990s, with an increasing share of the rural poor now concentrate(
in China's western provinces. The number of poor in the western provinces (including both th　northwestern and southwestern provinces) increased from less than half of all of China's rura　poor at the beginning of the 1990s to more than two thirds (about 70 percent) by 1996. Thii　increasing concentration of poverty in the western provinces is observed using both the officia　government poverty line and the international dollar per day poverty line. The change in thi　distribution of remaining rural poverty was driven by sharp declines in the incidence of poverty ii　the eastern and central provinces relative to the more modest achievements in the westen　provinces. Poverty reduction in the northwestern provinces appears to have been particularly　limited, and the severity of poverty is also deepest in these provinces.
　　Mountain Area Poverty. In addition to this concentration of poverty in the westen　provinces, it is believed that the majority of China's poor reside in mountainous counties an　townships. A number of observers have concluded that China's poverty problem mainly occurs ii　poor mountain regions, and China's poverty reduction programs have long focused on mountair　areas. Available information and field visits in a number of poor areas have documente　considerable disparity at the county level, and confirm that a very high proportion of the rura
poor live in mountain townships. These poor mountain townships are located in the nationally　designated and provincially-designated poor counties, and in a number of other counties no　specifically designated as poor. Administrative boundaries in mountain counties typical);　delineate better-off townships around the county seat and in wide valley floors @baqu"), an　poorer mountain townships in higher elevation outlying areas ("shanqu"). In Yunnan, foiexample, the provincial government selected 506 key townships for poverty reduction program'beginning in 1995. Almost all of these poor townships are distributed in high mountain ranges, in　steeply-sloped mountains, and in minority and border areas. Some 86 percent of Yunnan's　remaining poor in 1996 reportedly resided in these 506 poor townships.

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