Targeting measures used in anti-poverty programs in PRC

PRC has different poverty reduction programs for its rural and urban residents. Rural poverty reduction focus on the development of the poor regions and the poor itself, while urban poverty reduction concentrate on the provision of minimum living standard and basic social services.

PRC's rural poverty reduction strategy and targeting mechanism

Regional poverty targeting

The most salient characteristic of PRC's poverty reduction program is its regional targeting; i.e., all the poverty reduction funds from the government are targeted at defined regions and not directly at poor populations. Counties remained the basic units for state poverty reduction investments till 2001; the central government first designates poor counties according to certain standards⁹ and then invests all the anti-poverty resources in these poor counties through different government departments and state-owned banks. Four organizations including the Office of the Leading Group for Poverty Reduction (OLGPR), the Agricultural Bank of China (ABC), the National Planning and Development Commission (NPDC), and the Ministry of Finance (MOF) are intensively involved in the delivering and management of government poverty reduction funds. Each organization uses its own administrative system to channel poverty alleviation funds from the central government to the provincial government and then to the county government. Rules and criterions adopted by these organizations for funds distribution and project selection are the bases for targeting accuracy.

Designation of Poor Counties

Since almost all of poverty reduction funds have to go to the nationally designed poor county before they can be used for anti-poverty projects or by the poor households, the process and accuracy of poor county designation will first of all affect the targeting and the effectiveness of all poverty reduction funds.

PRC's poor county designation began in 1986 when the newly established Leading Group for Poverty Reduction (LGPR) under the State Council designated 258 poor counties in 17 provinces and autonomous regions. The basic criterion for being selected as a national poor county is that the average net income per capita of all rural residents within the county should be less than 150 yuan. However, different treatments for different counties are applied in the selection of poor counties. Revolutionary bases where Communist Party and its army were active in the revolutionary era before 1949, minority counties and pastoral areas received preferential treatment, whose per capita net income level can be as high as 300 yuan in order to be designated. Among 258 poor counties, only 83 where the per capita net income of farmer households was below 150 yuan, 82 between 150 and 200 yuan and 93 between 200 and 300 yuan. The fact that per capita incomes in only a third of the counties were under the LGPR's income line of 150 yuan showed that the selection of poor counties was highly political. In 1987, 13 counties in old revolutionary areas and two other counties were listed as national poor counties. In 1988, 27 pastoral and semi-pastoral counties were designated as such. Counting the poor counties in the "three Xi" prefectures that had been given state financial aid since the early 1980s, namely, Dingxi and Hexi Prefectures in Gansu Province and Xihaigu Prefecture in Ningxia Autonomous Region, the number of state-designated poor counties totaled 328 in 1988. Shaanxi, Gansu, Yunnan, Guangxi and Sichuan had the greatest number of poor counties, while Gansu, Ningxia, Shaanxi, Qinghai and Guangxi had the highest proportion of their counties designated as poor (Table 8).

Table 8[PDF: 375kb] | 60 pages]

The central government also demanded that all provinces and autonomous regions designate their own poor counties and that these counties be supported with provincial funds. By 1988, 370 counties had been designated as provincial poor counties.

In 1989, Hainan was made a separate province from Guangdong and three counties in Hainan Province were added to the list of national poor counties. Subsequently, there were no major changes in the list of poor counties until 1993.

In 1993 the Chinese government formulated the "Eight-Seven Poverty Reduction Plan" to show its determination to eliminate absolute poverty by the end of the century. Considering the changes that had taken place since the designation of poor counties in 1986, adjustments in the list of state-designated poor counties were obviously necessary. Despite the decrease in the poor rural population from 125 million in 1985 to 80 million in 1993, the number of state-designated poor counties increased from 331 to 592 after the readjustment (Tables 9). The LGPR defined a per capita net income of less than 300 yuan in 1990 for farmer households as the standard for selecting new poor counties; and only 326 counties conformed to this standard. As poor counties enjoyed various allowances and preferential access to resources, the dropping counties from the new list naturally met with strong opposition. As a result, few were removed from the list while many new ones were added.

Table 9[PDF: 375kb] | 60 pages]

The revision of the list of poor counties in 1993 must be considered a step forward, since it was made on the basis of the poverty line recommended by the NBS, with the result that many previously neglected poor counties were added. In some poor provinces and autonomous regions, previously province-designated poor counties were changed into state-designated ones, and no additional provincial poor counties were selected. The readjustment rendered the greatest benefit to Yunnan, Guizhou, Hebei provinces and the Inner Mongolian Autonomous Region. The proportion of their total rural population living in poor counties in the last three provinces rose by 20%, and in Yunnan by 40%. Coastal provinces as Fujian, Guangdong, Shandong and Zhejiang sustained losses in the readjustment. The proportion of poor county rural population in Fujian, for example, was reduced by 11%.

After Chinese government announced that PRC has basically solved the food and closing problem of the rural absolute poor in early 2001 when the "Eight-Seven Poverty Reduction Plan" was completed, PRC's rural poverty reduction entered into a new stage. To reflect the changes of poverty situation in different regions and focus on poverty problem in inland provinces and autonomous regions, the LGPR readjusted the poor county once again in 2001¹⁰. The total number of national poor counties is still kept at 592, while the distribution of the poor counties further shifted to the central and western provinces. All the poor counties in coastal region designated in 1993 were eliminated from the new poor county name list (Table 9). The provincial governments in the coastal regions are assumed to take full responsibility for poverty reduction within their jurisdiction.

Designation of poor villages

With the decrease of the rural poor population, county was no longer the appropriate targeting unit. Chinese government issued a new Poverty Reduction Compendium for the next 10 years in 2001, in which village targeting was proposed though key poverty reduction counties were still designated and the counties would still exercise overall administration of poverty reduction funds. With the financial and technical helps from ADB and UNDP, OLGPR developed appropriate methodologies and indicators for identifying the poor villages and households. It is required that most poverty reduction funds must go to the poor villages. Non-poor villages in key poverty reduction counties are no longer eligible for poverty investments, while poor villages in non-key poverty reduction counties are qualified for poverty investments. County governmenttook the responsibility to identify the poor villages within the quota set by the provincial government.

Indicators for village ranking

OLGPR proposed a weighted poverty index (WPI) developed by ADB for villages ranking. The index was generated from the score of eight indicators, namely: livelihood poverty indicators (grain production/person/year, cash income/person/year, and % of bad quality houses); infrastructure poverty indicators (% of households having difficulty of access to potable water, % of natural villages with access to reliable electricity supply, % of natural villages with an all-weather road access to county town); human resource poverty indicator (% of women with long-term health problem, % of eligible children not attending school). Except for the first two indicators that are continuous, the rest are proportions and relatively easy to collect. For cross-village comparison, it is better to have the same indicators for all the villages. In practice, OLGPR allowed the local governments to change some of the indicators according to the local situation. This decision has made the identification process more flexible, but at the same time made it more difficult to compare poverty between counties and provinces.

For comparability, the weights assigned to the indicators should remain constant across townships, counties and provinces. In practice, however, the weights were actually assigned by a group of villagers including the poor and women in a few sample villages in each county by using participatory approaches, which means different villages in different counties will have different weights for the same indictors. The advantage of having different weights in different counties is that farmers in different communities may have different perception about poverty and its causes and this can be reflected in the weights they assign to each indictor. The disadvantage of having villagers setting the weights for each indicator is that its quite subjective and sensitive to the local conditions, e.g. farmer in a village without access to road may give the highest weight to road accessibility while farmer in another village without electricity may give the highest weight to electricity accessibility.

Data collection for the selected indicators

The recommended method for data collection is group discussion held in each village. The concrete steps are: a) organizing a discussion meeting in each village; b) explaining the indicators to all the participants to ensure that they have the same perception about the indicators; c) dividing the participants into several small groups and each group fill out the figures for each indicator; d) writing out the figures filled by each small group and initiating discussions about the figures among all the participants to reach an agreement on each indicator. When there was no reliable records or survey for most of the indicators at the village level, participatory approach was the most suitable way to collect information. The only problem was that the quality of the data collected largely depends on the knowledge and skills of the organizers.

Poor village identification

Since WPI calculated from the above procedure was only valid for village ranking within the county, county governments (mainly OLGPR at the county level) were assigned responsibility for poor village identification. Working teams were organized to help villages select indicators and collect relevant data. County OLGPR then calculated WPI and identified poor villages by ranking them all; the higher the index, the poorer the village. It was required that the name list of all the identified poorvillages be publicized within the county for monitoring purpose. The most appealing about this index is its simplicity. However, effective implementation of the whole process is not an easy task for the county governments and needs lots of expertise in the area of participatory methodologies.

County OLGPR suggested a name list of poor villages to the provincial OLGPR and the later adjusted the number of poor villages in each county according to total number of poor villages the provincial government could support within the planned time period. A total of 146 thousand poor villages were identified by the end of 2001 through participatory approaches.

Poor household identification

Though income poverty lines (625 and 820 yuan) are set for poor household identification in PRC. It is recommended that participatory approach be used to identify poor households in each village because household income data is not available at this level. Six steps were proposed to be taken to distinguish the poor from the non-poor. a) printing out a name list of all the households in the village; b) organizing group discussing of villager representatives; c) classifying four household groups, namely households on relief, extremely poor households, poor households and better-off households; d) identify the basic characteristics of each group; e) designating each household into one of the four groups by voting; and f) estimating an income level for each group and all the households in the groups with income below the official poverty line can be designated as poor households.

Village/community development planning

To implement poverty reduction programs at the village level, village development plan made through active participation of all the households in the targeted villages accompanied the poor village identification process, and would serve as the bases for projects identification, investments and monitoring. The whole process of village planning is summarized in chart 1.

Targeting measures at the project level

Whence the poor counties are designated and poverty reduction funds delivered to these counties through different channels, the county governments and the ABC county branches play key roles in project selection and poor community and household targeting. Different types of poverty funds are managed by different organizations with different regulation and roles on fund purposes, project and beneficiary selections.

Subsidized loan program

The main objective of the subsidized loan program was to provide credit support for the production activities of poor areas and the poor population so as to boost economic development and improve the income and living standards of the poor. The bulk of subsidized loans are provided to households or enterprises in poor counties at a subsidized annual interest rate of 2.88 ¹¹.

Subsidized loans were managed mainly by LGPR county offices and the ABC county Bank. By regulation, the choice of projects and households to be supported was left mainly to the care of LGPR county offices; and questions of issue and recovery to the care of the ABC county branches. With the commercialization of the state-owned banking system in recent years, ABC is getting more independence in deciding the use of subsidized loans.

When the subsidized loan program was begun in 1986, the government believed that a key constraint facing poor farmers in generating income was the lack of available capital and an inability to gain access to the formal credit system. The government also felt it was important to provide technical assistance and other services. With this premise, priority in the first phase of lending was given to distributing subsidized loans directly to poor households selected by poverty officials to develop cropping, animal husbandry, and agricultural processing. An official survey at the end of 1987 showed that in the first year of the program, 92 % of subsidized loans were distributed directly or indirectly to farm households, rather than to county, township, or village enterprises.

This pattern of loan distribution ended by 1989 when the Leading Group opted to encourage the development of economic entities (jingji shiti) for assisting the poor. These economic entities were enterprises engaged in some kind of productive or service activity that helped poor households to escape poverty. The new policy stipulated that at least half of the employees of the economic entities had to be from poor households in order to qualify for subsidized loans. This change in lending priorities was based on the view that most poor households could not make good use of subsidized loans on their own because they lacked the necessary technical and management ability and could not achieve economies of scale in operation. In contrast, economic entities such as collectively managed orchards or companies selling agricultural or sideline products were managed by professional personnel who could coordinate activities on a larger scale. An important goal of the reform was to improve the productivity of loans and achieve higher repayment rates. Evidence from some poor counties and provinces revealed that since 1989, over 70 percent of subsidized loans had been distributed to economic entities.

The main problem with lending to economic entities was that the connection to poor households was much less direct, which compromised the original targeting goals of the program. Many of the loans were given to township and village enterprises (TVEs) or county-owned enterprises, increasing the revenue base for local governments but not greatly benefiting poor households. What was more serious was that most of the industrial projects built with subsidized loans failed in the end due to technical, management and market limitations; hence, there was no conspicuous improvement in the repayment rate of the loans. At the national work conference on poverty in September 1996, the government decided to return the focus of lending to providing direct loans to poor households for cropping and animal production.

To better serve the poor households, microcredit schemes were introduced in 1997 as an important measure to improve the targeting accuracy as well as loan recovery. By the end of 2001, the amount of microcredit issued by ABC through the use of subsidized loans totaled 3.8 billion yuan, covering 2.3 million poor households and 10.6 million poor population (Cao, 2003).

Due to the restrictions imposed by macrofinancial policies, all microcredit projects confronted a difficult problem of sustainable development. The main aim of local governments in using the subsidized loans to make microcredit available was to use microcredit techniques to reach households (not necessarily the poorest farmer households) and increase repayment rates. Compared with the previous subsidized loans, the government microcredit program was a big step forward in terms of getting credit funds to households and raising the repayment rate. But the greatest defect of the government program was that the government neglected the development of the microcredit mechanism and the building of institutional capacity; most of the working personnel were ad hoc administrators brought together mainly to serve a temporary task. The key issue of how to provide effective long-term financial services for the poor through microcredit was not given any consideration in the government microcredit projects.

Food/cash for work program

The main aim of food/cash for work was to make use of the surplus labor resources in poor areas to build such infrastructure as roads, water conservancy and drinking water facilities and farmland, at the same time providing poor farmers with job opportunities and income sources, thus raising their short-term income level and long-term development capacity.

From the very beginning, the food/cash for work scheme had been a multi-annual one organized and implemented by the NPDC system. A special feature of the scheme's management was the payment of project costs in kind. The basic management mode was that the planning committee distributed coupons to be exchanged for grain, cloth and daily necessities directly, to the relevant project implementation institutions (such as the traffic bureau, the water conservancy bureau, etc.) and got those institutions to make the exchange. Materials were to be allocated by state-run commercial departments (such as the grain bureau, the commercial bureau, etc.) and in some cases food coupons could be exchanged for cash through the bank.

In the initial period of the scheme, poor areas were required to secure state-allocated materials from coastal and other developed areas and then distributed them to the project implementation units, which in turn would sell the materials in local markets or hand them over directly to the farmers. As it cost a good deal to transport materials from coastal to poor areas, in the 1990s such materials began to be sold in their places of origin and the cash thus obtained was remitted to the poor areas, where the planning committee office in charge would distribute it among project implementation units. Beginning in 1997, all the funds used for FFW came from the government budget rather than from selling grain or industrial consumption goods.

Policy dictated that the resources provided by the central government for the food/cash for work scheme were to be augmented by the provincial, prefectural and county governments. But in reality, due to the strain in local financial resources, the matching funds from local governments were very limited, or even non-existent. Funds for food/cash for work were mainly used to pay for supplies and labor for infrastructure projects in poor areas.

Since FFW funds are mainly used for infrastructure construction, poor households can only benefit from the improvement of production and living conditions and wages earned from participating in the project construction. The selection of the project sites and whether wages are paid are determinants of short-term and long-term impacts on poverty reduction.

The project selection procedures depend on the scales and nature of the projects. Large-scale projects such as roads connecting counties and townships are usuallyapplied and implemented by specialized county government bureaus, e.g. the traffic bureau, while small scale community based projects are usually applied and implemented by the village committees and the township governments. The specialized construction teams are hired for the construction work of large-scale project and wages or lump sum construction fee are paid to workers or construction teams. As for community based small-scale projects, village committees and township governments usually mobilize compulsory labors to carry out the construction; wages may or may not be paid for these labors depending on the budget of the projects.

Budgetary development fund

The low level of economic development in PRC's poor areas made it impossible for most poor counties to be self-sufficient financially, as their expenditures far exceeded revenues; and such counties were absolutely unable to make any investments. It was precisely the purpose of the budgetary development funds to support productive construction projects and investments by means of special funds. The fund can be used to support promising industries using appropriate technology, support infrastructure construction and agricultural structural adjustment, and develop external agriculture and green industry. A small portion of the fund has also been used in the area of primary education and basic health care, e.g. school and clinic construction.

All budgetary development funds came from the Ministry of Finance and mainly managed by the fiscal system. It is also required that local governments (province, prefecture and county) provide matching funds, though these matching funds have rarely in their place. The project identification and implementation are much the same as FFW except that budgetary development fund can also be used in the area of social and human development such as education, health care and training, and the project scales are usually smaller. Wages are usually not paid for project participants except that some projects need skilled workers or specialized construction teams.

Compulsory education project

Beginning in 1996, Chinese government set up a separate fund for the implementation of compulsory education project with the objective to improve the basic schooling conditions in the poor counties. The Ministry of Education (MOE) is in charge of the project fund and the county education bureaus are responsible for the implementation of the project.

The focus of the project is on the construction of new primary and secondary schools, enlarging and repairing old schools, purchasing desks, chairs, book and equipments, and training teachers and principals. It is also required that local governments in poor counties should merge small schools and provide boarding facilities for students in order to improve the education quality and reduce cost. In the first five-year project period, no subsidies were given to school students. The second phase (2001-2005) project began in 2001, covering 522 poor counties with the emphasis on mountainous, pastoral, border and minority areas (especially minority areas where the total population is under 100 thousand). Subsides for poor students were added as a components of the project, which accounted for 10% of the total budget. The subsidies from the central government were mainly used to cover the textbook cost. It is also required that local governments provide the same amount of subsidies for tuition exemption and boarding fee deduction. Beside the subsides, 60% of the fund should be used for school construction, 10% for IT equipments (computer, satellite receiver, SVCD, video recorder and TV) for long distance education, 10% for desks, chairs, book and other equipments, 10% for school teacher and principal training.

Urban poverty reduction strategy and targeting

In PRC, the task of urban poverty reduction is assigned to municipal and township governments. The central government provides subsidies for the local governments to establish a minimum living standard system.

Criteria for selecting urban residents who are eligible for receiving subsidies and the amount of subsidies are determined by municipal and township governments. No poverty line based on income or consumption has been developed in any city. Instead, a set of mixed indicators including employment status, housing, illness, disability, etc. is usually used to identify the subsidy recipients. The amount of subsidy received by each recipient is different according to his/her income and living conditions. Unlike rural poverty reduction, the Ministry of Civil Affairs (MCA) is the only government organization that is assigned responsibility for the administration of urban minimum living standard system. MCA city and county bureaus are the implementation units of such a system, who rely on urban residents committee at the community level to provide necessary information to accurately identify the beneficiaries.

By the end of September 2003, 21.8 million urban residents in 8.9 million households are eligible for receiving subsidies and a monthly subsidy of 56 yuan is distributed to each recipient on average. However, the minimum living standard and average subsidies provided are quite different between cities and provinces, usually determined in line with their financial ability and the coverage of the program (Table 10).

Table 10 Minimum living standard program in PRC (2003)

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