1. This report was originally produced as a complement to China：Overcoming Rural Poverty，which was published as a World Bank document in 2001. These new reports have been produced at an important juncture as the government of China re-evaluated its poverty reduction strategy and announced the establishment of a new initiative for the development of China's most impoverished western region. The recommendations presented in the World Bank report emphasize the need for strengthening poverty reduction interventions directed towards the interior provinces，and in particular towards highland and mountainous regions where China's absolute poor are concentrated，and where a number of factors（remote location，poor environment and infrastructure，as well as social and cultural factors）interact to make further poverty reduction increasingly difficult.

2. The alleviation of poverty in the interior provinces is a critical priority if the government is to achieve its overall poverty reduction objectives and to raise the living standards of the poorest members of the population. While supporting the need for regionally focused interventions，this UNDP report draws attention to other aspects of the poverty problem that increasingly require attention. It highlights the problem of poor people located outside geographically targeted poor regions，in both rural and urban areas；and it emphasizes the multi-dimensional nature of poverty，focusing on human aspects（such as health and education status，and forms of exclusion by gender and ethnicity，for example）that are not captured in the conceptualization of poverty underlying recent policy，nor reflected in income and consumption based poverty indicators.

3. China has made exemplary progress since 1978 in reducing the extent and depth of poverty. Nevertheless，absolute poverty persists at a rate that is probably significantly under-stated by official poverty statistics. Moreover，the income poverty threshold used by China is very low；use of a poverty line comparable to international practice would generate a much larger headcount rate of poverty. Poverty is also becoming more difficult to eliminate，and new forms of it-in towns and cities and in rural counties not designated as poor-have emerged. The appearance of an HIV/AIDS epidemic in many parts of the country threatens to be a potent source of impoverishment and social disruption if not effectively dealt with. Many of the absolute poor live in areas cut off from the economic mainstream，and may also lack labor（due to illness or disability，for example），and the basic skills or resources necessary to secure a livelihood. Their problems are deeply rooted or structural in nature and thus not easily solved by broadly targeted interventions.

4. The dominant approach to poverty reflected in government policy towards poor regions views poverty primarily as a result of ecological disadvantage and lack of reform. By contrast，the new forms of poverty that have arisen in the context of economic transition and marketization are by no means limited to remote，upland areas，and may be largely a consequence of reform processes. Such poverty may reflect the inability of individuals to cope with greater risks associated with market transition，the simultaneous erosion of collective or state provided social and economic support，and the absence of an adequate new safety net to replace the defunct older institutions. Population groups facing new forms of poverty and vulnerability include the rural population living outside designated poor counties，migrants and the newly emerging urban poor. Gender，age and disability are additional factors which make certain groups of people more vulnerable to poverty.

5. In keeping with UNDP's commitment to human development，the analysis and recommendations presented in this report reflect broader，multi-dimensional concepts of poverty and development as articulated in the UNDP's Human Development Reports and Poverty Reports（UNDP，1997，1998 and 2000）. in these reports，human poverty is defined as the denial of opportunities and choices most basic to human development-to lead a long and healthy life and to enjoy a decent standard of living，freedom，dignity，self-esteem and the respect of others. Interventions to reduce human poverty must not only increase incomes but also strengthen the overall asset base of the poor（including financial，human，social，cultural and environment assets），raise education and health status，and address other forms of exclusion or disadvantage-such as gender，ethnicity，age and disability-which exacerbate poverty and prevent the full participation of individuals in the development process.

6. In addition to integrating human development issues into the overall analysis of poverty，this report seeks to locate poverty reduction strategies within the broader context of China's overall economic growth strategy. It draws on research which suggests that the segregation of the poverty reduction program from other government policies frequently leads to contradictions between them，reducing the effectiveness of anti-poverty interventions. Economic policy has sought primarily to foster growth，often by shifting resources away from poor areas through unfavorable investment and pricing policies，and then returning some resources to them through specific interventions. Sustainable poverty reduction will require policies that are better integrated into a national economic development strategy.

7. Rather than focusing principally on poverty and poverty reduction in poor regions，this report deals with the relationship between growth，inequality and poverty reduction throughout China. A central argument is that the uneven pattern of growth-both within and between regions-has significantly weakened the potential poverty reduction effect of income growth. Despite the remarkable levels of growth sustained throughout the period under consideration，sharp increases in inequality prevented the poorest people from sharing the benefits and brought into existence a new class of urban poor.

8. A major reason for the exclusion of many of the rural poor from the benefits of growth lies in lagging agricultural output and fluctuating terms of trade for agricultural products. This has led to a change in the composition of rural incomes and，in turn，to an increase in inequality-both at a household and regional level. These trends may well be strengthened as a result of China's accession to membership in the World Trade Organization. Also，the restructuring of state enterprises has led to a sharp increase in urban unemployment，which，in the absence of an adequate social safety net，has in turn been responsible for growing urban poverty. WTO membership may intensify this trend，as well. Growing inequalities and the related slowdown in poverty reduction are reinforced by the structure of public finances. The system of taxation is highly regressive，both within and between rural and urban areas，while other urban reforms（in wage and housing policies，for example）also lead to increasing income and wealth differentials. Furthermore，continued restrictions on migrant activities in urban areas and the exclusion of migrants from many basic services increase poverty in both rural and urban areas. Given the diverse and changing nature of poverty，and the context of growing inequality in the distribution of income，the regional targeted strategy will be inadequate by itself to achieve sufficient and sustainable further poverty reduction.

Recommendations

9. The analysis of poverty trends and policy presented in this report suggests the need for a significant reorientation of the national poverty reduction strategy. Emphasis should be placed on designing a more comprehensive policy framework for poverty reduction so that poverty reduction policies become an integrated part of the nation's overall economic policy. This policy framework must be sensitive to the need for continued rapid growth but must include measures to ensure that the pattern of growth is pro-poor. Such a framework should include an array of policies along the following lines：

·reversal of policies（such as privileges and tax concessions）which favor coastal regions，and providing incentives to increase investment in the interior provinces and the agricultural sector，as has begun to happen in connection with the recently adopted "great western development strategy；"

·ending discrimination against small-scale and private firms，especially in access to credit，and otherwise acting to reverse the capital-intensive bias of public policies that has made China's recent economic growth employment averse；

·generation of employment in poor areas，the countryside and small towns through labor-intensive enterprise development and public works schemes；

·development of the physical infrastructure in poor regions which should in turn raise the returns to investment and attract further funding to these areas；in addition，and complementary with this：

·improvement of the educational，medical，cultural，legal and governance infrastructure of poor interior regions in the effort to attract new businesses，including labor-intensive operations relocated from more advanced coastal regions as costs there rise；

·stimulating the rural economy，particularly through altering pricing policies which discriminate against agriculture，and removal of barriers to the growth of agricultural output；

·greatly increasing resources devoted to the provision of essential public services，such as basic health care and education in general，and in poor regions specifically.

·moving aggressively to complete the erection of a safety net to aid people displaced by increasingly rapid structural changes，take the burden off the shoulders of state enterprises，and promote labor mobility；

·guarding against increasing inequality in land use rights and acting to guarantee and protect women's access to land；

·promoting participation of the poor in the growth process，for example through greater access to credit institutions，markets and information；

·relaxation of restrictions on factor mobility，such as regional protectionism and the rigid population registration system，and on migrant activities and access to services in urban areas；

·fiscal reforms that are sensitive to their distributional impact，both at the household and regional level，combined with shorter term measures to increase the allocation of resources to poor areas.

10. Continued economic growth，even if this is pro-poor，will not be sufficient to solve the existing problems of income disparities and poverty. The current situation calls for more effective micro-level interventions，including targeting of poverty reduction funds and greater participation by the poor in poverty-reduction programs. Policies are needed that address not only income poverty but also the broader dimensions of human poverty. An approach that combines targeted measures with pro-poor macroeconomic policies may more effectively address the extreme poverty that has remained impervious to general economic growth and has not been addressed by the broad geographically-based allocation of resources.

11. WTO membership will limit China's ability to use farm price supports as a broad instrument of poverty relief. However，many kinds of programs and policy instruments that can be used to focus poverty alleviation activities on poor families and villages are completely permissible under WTO rules，including the following：

·transfers to individuals who lack productive capacity，e.g. through age and disability，and are thus dependent on support whether from the state，local government，community or family. Other population groups may need short term assistance in the case of sudden shocks or transitory poverty；

·direct provision of basic public services to the poor such as public health and immunization services，basic education，information and job training；

·investments in basic infrastructure（such as water supply and irrigation，rural roads and bridges，electricity and power supplies）which are most directly relevant and accessible to the poor；

·micro-credit programs which provide households with affordable credit often in conjunction with additional training，information and opportunities for organizing and participation in local decision making；

12. Effective realization of poverty reduction objectives will depend on the participation of poor people in project decision-making，design and implementation. Participation of local groups can lower the costs of implementing and monitoring programs，as well as fostering local initiatives for further development. Such groups can also play an important role in monitoring the use of funds and ensuring accountability.

13. There is also a need for more systematic monitoring and evaluation of poverty and poverty reduction programs. This requires improved data collection and better methodologies for measuring and monitoring changes in human and income poverty，as well as improved analysis of the impact and cost effectiveness of specific interventions. Greater use should also be made of participatory methods which enable the poor themselves to contribute to the monitoring and evaluation process.

14. In the early years of the twenty-first century，China's biggest challenge will be the growth of insecurity among its people，especially those in poverty who face a multitude of problems including low and unstable incomes，unemployment or job insecurity，high health care and education costs and limited support in old age. Such problems pose the danger of backsliding in the movement toward China's Millennium Development Goals. Despite the doubling of China's GDP，and with the coastal areas approaching income levels of the middle-income countries，those people who remain in poverty face greater risks. The opportunities and rewards provided by an increasingly market-based economy in an era of globalization are distributed ever more inequitably. The sense of insecurity of the population is likely to become more pronounced，with implications for consumer demand，savings，economic growth，and social stability. Thus addressing inequalities in opportunities，redressing some of the imbalances of the market led policies，and making continued efforts to integrate the poor into the growth process must be priorities for the Chinese government.

15. The 1999 UNDP Human Development Report stresses the need to adopt appropriate strategies and growth patterns in order to achieve globalization with a human face. As China moves to take advantage of its membership in WT〇，which will lead to further integration into the global economy，meeting these challenges becomes an increasingly urgent priority.