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136 Economic Survey 2020-21 Volume 1

does not seem to manifest in countries that have high growth rates and high levels of absolute
poverty.

Box 1: POVERTY AND INEQUALITY TRADEOFF IN CHINA

China has made exceptional strides in reducing its extreme poverty rates since 1970s. As per data
from China National Bureau of Statistics, the head count ratio of poverty has reduced by 94 per cent
from 1980 to 2015 in rural China. By the official poverty line, which is about 21 per cent higher
than the line that is set at USD 1.9 per day (2011 PPP), since 1980, the country has made remarkable
progress in reducing poverty.

In contrast, the Gini coefficient of income distribution among rural residents in China rose from 0.241
in 1980 to 0.39 in 2011 or by 62 per cent according to the official estimation. In the 32 years between
1980 and 2012, per capita net income among the rural population rose by an annual average of 6.9 per
cent. During the period, the income for the bottom 20 per cent and 40 per cent households increased
4.5 per cent and 6 per cent annually respectively, while the top quintile household increased their
income at an annual rate of 7.5 per cent, as per World Bank . The huge fall in poverty came from the
3
poorest quintile increasing their annual income over a long time, while the rise in inequality stemmed
from top quintile increasing their income much faster than their poor counterparts.

The same World Bank research also argues that benefits of China’s sustained economic growth have
really trickled down. Accelerating industrialization and urbanization in a country of over one billion
people has transformed a large number of the agricultural surplus labor in the countryside into urban
employment in China. Between 1978 and 2015, the number of people in nonfarm jobs as a percentage
of total employment increased from 29 per cent to 70 per cent. This change also occurred in poor
areas and to poor households. Official data indicates that, while the number of those that moved
away for nonfarm jobs out as a percentage of the total size of the local labor populations was slightly
lower in poverty-stricken areas than in the nation as a whole, the gap between the growth rates of the
number of people shifting to nonfarm jobs in poor areas and in the nation as a whole was reduced
to close to zero for the 1996-2009 period. Between 2002 and the end of 2012, earnings from wage
and salaries as a percentage of total household income rose from 26 per cent to 43 per cent for rural
households in the bottom 20 percentile, at a rate that was roughly comparable to the national average.
Evidently, low-income rural households have benefitted proportionally from the changes in the
country’s employment pattern engendered by the dual process of industrialization and urbanization.
This was also aided by a good system of equal land ownership reforms, social development programs
in rural areas since 2000 (including universal compulsory education up to grade 9, rural medical
cooperative system, social pension system for rural residents, and a minimum living allowance
scheme) and targeted poverty reduction programs, in place nationally since 1986. China is now on
road to end extreme poverty by 2030.

3 Wu, Guobao. 2016. ‘Ending poverty in China: What explains great poverty reduction and a simultaneous increase
in inequality in rural areas?’. World Bank blogs. (Ending poverty in China: What explains great poverty reduction
and a simultaneous increase in inequality in rural areas? (worldbank.org))