Organizer: Scott Rozelle, Stanford University
Chair: Lee Travers, The World Bank
Discussant: Alan Piazza, The World Bank
After steady progress in reducing rural poverty during the early 1980s on the strength of agricultural price increase and institutional and market reforms in the rural sector, further poverty reductions over the past ten years have proved elusive. Rural poverty now stands at about 90 to 100 million, or approximately 10 percent of the rural population (World Bank, 1992). Moreover, there is evidence that poverty is now beginning to arise in areas outside of remote, peripheral areas. Ironically, this period of stagnation coincides with the time when the government launched investment, credit, and food-for-work programs in poor areas. Why haven't the nation's poverty alleviation efforts been more successful? Is the lack of progress due to ineffective poor area policies, overall stagnation in the rural economy (Rozelle, 1994), or insurmountable obstacles to improving livelihoods in remaining poverty belts concentrated in remote areas? There is even evidence that some poor areas have outperformed wealthier agricultural regions in some provinces (Stone, et al., 1992; Park, Ren, and Rozelle, 1994). Are policies in poor areas working? Why or why not?
The goals of this panel are to summarize our understanding of the recent development experience of China's poor areas and begin to assess the effectiveness of government policies aimed at promoting growth in these areas. Based on the work of four researchers who have spent extensive time in the field in some of China's poorest regions during the past year, the papers will present different aspects of the challenges currently facing China's poor areas. The first paper (Riskin) will paint an overall picture of the status poverty in non-poor regions of China. The second paper (Menzies) examines how the economic reforms, as implemented in remote rural areas with little regard to assuring basic property rights, have led to a vicious circle of population growth, environmental degradation, and poverty. The final two papers look at two aspects of the government's policy initiatives-the effectiveness of subsidized credit targeted for poor areas, the government's largest poverty alleviation program (Park), and the implications of reforms in local public finance for the ability of local governments in poor areas to pursue different investment and development strategies. The discussant and chairman are also long-time observers of the economies of poor areas in China: Piazza is the architect of the World Bank's poverty sector loan; and Travers founded the Ford Foundation's rural poverty alleviation program in the late 1980s.
Carl Riskin, Columbia University
Attention to rural poverty in China from policy makers and scholars has focused on regional poverty and the problems of poor regions. There is no doubt that rural poverty is more heavily concentrated in the poor areas than elsewhere. Yet, "China's Agenda 21," the foundation of the country's development planning to the end of the century, speaks of a "new poverty resulting from failure to be competitive in the marketplace." This kind of individualized poverty is not confined to traditionally poor, peripheral regions; in China's increasingly market-driven environment, such "new" poverty can occur even in well-off areas.
However, the "new poverty" has been little studied, not much is known about it, and it is not well understood. This paper will summarize the available information about the rural poor residing outside of poverty regions; examine, to the extent the data permit, economic and social characteristics that distinguish these poor people from the regional poor as well as those characteristics the two groups might have in common; and discuss the policies and resources available to aid the "non-regional poor."
Scott Rozelle (with Albert Park and Changqing Ren), Stanford University
Since 1980, there has been considerable devolution of expenditure responsibilities and financial authority to local governments in China (Wong, 1993). Studies of China's financial reforms to date have focused exclusively on the central-provincial division of revenues and expenditure responsibilities, overlooking changes occurring in sub-provincial finance. This is a conspicuous lacuna, as most government revenues and expenditures are collected and spent by sub provincial governments, especially county governments. Changes occurring in the distribution of public financial resources within provinces have critical implications for equity in the provision of basic social services and other public goods and for the feasible development strategies that can be pursued by local governments, especially in poor, revenue-scarce regions.
This study examines how the distribution of public financial resources has changed during the reform period in Shaanxi Province in northwest China, and the implications of these changes for local government investment and development strategies in poor areas. A unique dataset of county budgetary data from 1980 to 1992, along with provincial, prefectural, and township data, reveals that reforms in local public finance have increased local self-reliance in government public finance and reduced redistribution of resources to promote greater equity in government expenditures. Anecdotal accounts from field interviews in poor counties in 1993 describe an acute fiscal crisis that is making it difficult for local governments even to meet their wage bills for public employees. While forcing local governments to streamline operations and make tough allocation decisions, scarcity of financial resources may be compromising the ability of local governments to make public investments and provide social services that may be important requirements for economic development and which directly affect the welfare of local populations.
Albert Park, Stanford University
Amidst growing concern over rising income inequality accompanying economic reforms, in 1986 the Chinese government established the ministerial-level Leading Group of Economic Development in Poor Areas to oversee new national efforts to eradicate poverty as part of the Seventh National Five-Year Development Plan (1986-1990). Under these new programs, the national government has allocated about four billion yuan annually to support development projects in poor areas, with all but one fourth of these funds provided in the form of subsidized credit to designated poor counties (Office of the Leading Group, 1989). These loans are now in their tenth year, but remarkably almost nothing has been reported in or outside of China on the effectiveness of targeted credit programs in promoting economic development in China's poor areas.
Drawing on extensive field interviews with government and bank officials, village leaders, and farmers, as well as data collection in poor counties, townships, and villages in Shaanxi Province, this paper attempts to describe how poverty loans are administered, assess how successfully the poorest households have been targeted, and evaluate the performance of the credit program in promoting local economic growth. Most subsidized credit that reaches poor, rural areas is either lent to township and village enterprises (TVEs) or directly to households to support agricultural production. Inefficient credit rationing due to corruption and policy conflicts, poor repayment incentives, and a lack of good projects have all contributed to poor loan performance (Li and Li, 1992)-an outcome that is not surprising given the generally dismal record of subsidized credit schemes in other developing countries (Adams, ed., 1984). But in poor, rural areas of China, available capital is extremely scarce due to financial repression resulting from the Chinese government's monopolistic, fixed-interest banking system. The poor, who are bad credit risks for formal sector lenders, could find themselves rationed out of existing financial markets absent targeted programs. The paper considers how targeted credit programs could be improved, and the role, if any, of such schemes in the context of existing and potentially reformed rural financial institutions.
Nick Menzies, Ford Foundation
Even when investments are being targeted into the most productive sectors, and regional officials are not diverting funds to plug fiscal needs, weak property rights at the local level can undermine the effectiveness of development efforts. The goals of this paper are to illustrate the ubiquitous nature of this problem in China, and identify the linkages between weak property rights and resource management techniques that can keep even resource-rich communities mired in poverty. Focused primarily on poor mountainous areas in the Southeast-Yunnan, Sichuan, and Hunan Provinces-the paper will document the weak (or non-existent) systems of property rights in these poor areas, even after 15 years into a reform program that has "committed" itself to a goal of creating stronger incentives to use and develop resources. It will show that not only are good property rights systems not in place, but there is neither an understanding of their importance, nor a recognition of their relationship to resource management. The consequence of poor tenure rights in resource-dependent communities is particularly severe; few benefits are enjoyed by the poor households. Those resources that are mined tend to be used inefficiently with adverse environmental consequences.
To illustrate these dynamics, the author is drawing on the work of the scores of researchers and program administrators with whom he has been in constant contact for the past five years. A remarkably consistent story regarding the relationship between property rights and community development can be told in the basis of the experiences observed in sites across Southwest China. The paper will be built out of a series of anecdotes, many of which have followed the history of an area's property rights and development path for many years. Strong conclusions are drawn. China's reforms must face up to the difficult problems of land tenure, or growth in resource-abundant communities in poor, remote regions will remain stagnant.
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