Reducing Inequality and Poverty during Liberalisation in China: Rural and Agricultural Experiences and Policy Options

While liberalisation is designed to help growth and alleviate poverty by removing impediments that stop people and regions from specialising and trading, the process known as Core liberalisation (CL) has three components: it frees markets in goods and services, land, capital, and labour; phases out non-market influences on prices; and clarifies property rights. In the case of China, CL accompanied rapid, robust economic growth and reduction in poverty. However, from the mid-1980s, inequality – among regions, between city and village, and within rural communities – soared, leaving stubborn poverty increasingly concentrated in ‘rural poverty islands’ (RPIs). By 2001, almost 40 per cent of China’s poor – but only about a fifth of the population – lived in these RPIs. This paper analyses evidence of liberalisation in China, factors limiting the gains from CL for poor people and regions, and provides policy recommendations.