Social Protection Key to Poverty Alleviation

November 9, 2015

Bert Hofman, World Bank Country Director for China. China Daily

China has an unmatched record of achievement in poverty reduction over the past three and a half decades - accounting for 72 percent of the global reduction in extreme poverty. Last month, at the United Nations General Assembly, President Xi Jinping reiterated China's ambitious targets to further reduce poverty, as 7 percent of the developing world's poor still live in China today.

China's success in poverty reduction is the result of a combination of factors, including strong economic growth, attention to antipoverty programs, and improved access to social services and social protection. Establishing a comprehensive social protection system has been key for China's successful poverty reduction. The Dibao program, which provides cash to China's needy, is the backbone of the system. It is also the largest program of its kind in the world.

It is thus no coincidence that this week almost 250 participants from 75 countries are in Beijing to discuss social protection in an urbanizing world and to learn from China's success and more about its remaining challenges. The event offers an opportunity to discuss the role of social protection in urban areas - a dynamic and catalytic role that bolsters upward mobility through better access to safety nets, housing and jobs tailored to urban settings.

The Urban Dibao program was piloted in 1993 and expanded to all cities in China in 1999. By 2003, the program covered some 22 million urban residents. Workers laid off from State-owned enterprises and the unemployed accounted for over two-fifths of the program's beneficiaries. Studies documented how the Urban Dibao program cushioned the effects of China's SOE reforms on workers. Today, the focus of the Urban Dibao program has shifted to the elderly living in poverty, the working poor and low-income families with adult members with low skills, disabled or without a support network.

The Rural Dibao program was adopted nationwide in 2007, following years of piloting. The program has been scaled up from 36 million to 52 million beneficiaries between 2007 and today. The government's budget for the Rural Dibao program has increased dramatically, from 4 billion yuan ($629.08 million) in 2007 to 87 billion yuan in 2015, with the central government covering the majority of financing since 2009. This has allowed a five-fold increase in the average transfer amount to families, along with the vast expansion in coverage.

In recent years, China further improved the program's governance. In 2011, the government standardized the criteria for determining eligibility and made the enrollment process more transparent. Since 2013, households can apply for Dibao directly, bypassing village and township officials. The government has also established auditing and eligibility cross-checking mechanisms. In terms of size, systems and sophistication, China's Dibao program is comparable to the largest and successful cash-transfer programs in the world, such as Brazil's Bolsa Familia and India's National Rural Employment Guarantee Program.

In addition to the Dibao program, China's social protection system stands out for the extraordinary expansion of its social insurance programs. China's innovative pension systems for rural and urban residents have grown rapidly, expanding the coverage of informal sector workers from around 50 million in 2008 to nearly 500 million by 2015, which represents the fastest expansion in social insurance globally. Old-age insurance programs now reach over 80 percent of China's population, and almost all Chinese people have medical insurance. Meanwhile, geography-based rural poverty reduction programs continue to play an active role in reducing rural poverty.

While still a work in progress, the building blocks for a robust social protection system can continue to be consolidated in the coming years. Under the new normal of slower economic growth, we believe it is critical for the government to continue to strengthen the Dibao program in the 13th Five-Year Plan (2016-20) and take new measures to lift the remaining poor out of poverty.

China's spending on social assistance is still relatively low by international standards: Dibao claims only 0.3 percent of China's gross domestic product, compared with the average of just over 1 percent in East Asia. Dibao eligibility thresholds in the poorer Central and Western provinces are still considerably lower than the national poverty line. The government will also continue to explore better ways to address the social protection needs of migrants.

The World Bank, with its goal of ending poverty and boosting shared prosperity, will continue to support the government's efforts to reach more people in poor households efficiently and contribute to China's impressive poverty-reduction effort.

First published on China Daily on November 9, 2015