China’s pattern of growth and poverty reduction

According to Ravallion1 84 % of China’s population lived below the international poverty line of $1.25 per day in 1981, when only four countries, Cambodia, Burkina Faso, Mali and Uganda had a higher headcount index than China. However, The Economist (Jun 1st 2013) shows that China pulled 680 million people out of misery and reduced its extreme-poverty rate to 10% through economic growth in the years 1981-2010. Ravallion Chen,2 Montalvo Ravallion3 argue that China’s growth has been highly uneven across sectors and regions. Although the non-primary sectors are key drivers of China’s aggregate growth, the primary sector (mainly agriculture) is the main driving force in China’s poverty reduction, and it is the unevenness in sectors rather than in regions that handicaps China’s poverty reduction. Despite the unevenness in the sectoral pattern of growth, no one denies the fact that China has won the greatest success in reducing poverty in modern times, so how its pattern of growth reduces poverty has been debated heatedly. Montalvo Ravallion3 use PGH (pattern of growth hypothesis) to argue: the sectoral composition of economic activity affects the aggregate rate of poverty reduction independently of the aggregate rate of growth, meaning that the policies that are good for growth are not necessarily good for poverty reduction, because the real driving force in China’s remarkable success against poverty is not the secondary (manufacturing) and tertiary (services) sectors, but agriculture.