China’s Victory Over Poverty

Over the past 40 years, China has lifted 800 million of its citizens out of poverty, accomplishing a miraculous feat. That’s 10% of the world’s population. To put this into perspective, the current world poverty rate is 9.2%, meaning that China halved the world poverty rate. While the Chinese Communist Party has been regarded by the United States and the global community as an autocratic aggressor due to their genocide of the Uyghur ethnic minority and belligerent behavior regarding Taiwan, they have done a stellar job of combatting poverty that we could honestly learn a few lessons from.

The Starting Point: Mass Poverty

China’s extreme poverty rate in 1981 was a whopping 88%, which goes without saying is really dismal. The extreme poverty rate line was defined by the World Bank as living on less than $1.90 USD in 2011 purchasing power (they recently increased it to $2.15 due to inflation, but we’ll ignore that for simplicity). China’s extreme poverty rate fell steeply to 0.3% by the end of 2018. That’s right, you didn’t misread it. 88% to 0.3%. How could China achieve such an eradication of poverty in merely 40 years?

Super-Charged Economic Growth

If there’s one lesson to learn from China’s success story, it's this: economic growth is an incredibly effective cure for poverty. Economic growth occurs when a country produces more goods and services in relation to its population - when real GDP increases. The increase in the productive capacity of a country with economic growth generally coincides with more jobs, more goods/services being produced, and a higher standard of living. An example to illustrate this: the country Investbrightia has 10 people, with one person (Joe) in poverty. Joe is unemployed as well. Something happens to spur economic growth; let’s say Investbrightia’s government invests in building a nuclear power plant in the country (go clean power!). Now Joe can get a job. He will help produce nuclear energy in the power plant, which will be sold to other people in Investbrightia. The money from selling the energy can pay for Joe’s wages. Suddenly, Joe is no longer in poverty (provided his wages are high enough) and people in Investbrightia get more (clean!) energy. That’s how you end poverty, and that’s exactly what China did.

Kind of. That was an oversimplified example; in reality, China’s path to end poverty had 2 main stages.

Stage 1: Agriculture

Agriculture sounds like a pretty random industry to end poverty in the most populous country on Earth, but its role in China’s poverty reduction was critical.

Prior to 1978, China’s agriculture industry was socialist, part of the government-planned economy. Farmers worked together in communes, with all the land equally distributed between the farmers. The yield of their labor was all equally shared as well. Sounds utopian, right? Unfortunately, because everything was shared equally no matter what, the farmers had no incentive to work hard, or even work at all. Agriculture production was stagnating, and the people were poor.

China’s solution: decollectivize agriculture. Essentially, they moved away from communism and towards capitalism. They allowed farmers to consume or sell their own crops on the market instead of forcing them to hand over their yield, instantly incentivizing them to work harder. Additionally, they stopped setting prices and quotas to the farmers for their crops and allowed them to sell at the market price determined by supply and demand (which, you guessed it, was much higher than the price set by the government). The result was a swift rise in agricultural productivity and agricultural incomes. Here’s the kicker: 63% of China’s labor force worked in agriculture in the early 1980s, when these reforms began. That is a massive portion of the population to suddenly see a rapid rise in income, and this contributed greatly to poverty reduction.

Stage 2: Industrialization

At the same time as the Chinese government began implementing market-oriented reforms in agriculture, they began to open their previously-closed economic doors. They prioritized exporting goods to other countries and set up “special economic zones” in coastal cities, which are allowed to have more free-market economic policies and laxer government regulation to foster trade and foreign investment.

China’s special economic zones - https://www.globalvillagespace.com/history-of-special-economic-zones-in-china/

To add on to that, as agricultural productivity rose with the earlier-mentioned reforms, millions of agricultural workers suddenly didn’t need to work in agriculture. Those workers were shepherded to Township and Village Enterprises (TVEs) to work in industrial jobs. TVEs were companies located in townships and villages, the rural and agricultural parts of China. This large supply of labor served as the base of China’s industrialization. Worker productivity increased as well, with the Chinese government investing strongly in education and producing a skilled workforce. 

The big boost to China’s industrial efforts came when it was accepted to the World Trade Organization in 2001. China’s foreign trade rose massively, with the share of foreign trade in China’s GDP rising from 39.6% in 2000 to 63.8% in 2005. The country solidified its place in the world as a major exporter, and became the world’s largest exporter in 2009.

All of these industrialization and export-focused efforts produced more jobs and increased the output of the country, creating economic growth. And we know what economic growth does to poverty.

Conclusion

Economic growth reduces poverty. It’s a simple concept, but it's difficult in practice. Think about China’s starting point: they had a very high poverty rate, was a poor agricultural country, and was communist. Through market-oriented capitalist reforms, they grew their economy and reduced poverty quite a bit. However, this is hard to recreate in countries that are already capitalist, wealthy, and whose economies may not have that much more room to grow. If we can innovate and find new ways to produce economic growth, we may have a shot at defeating one of humanity’s greatest enemies.