Poverty in China since 1950: A Counterfactual Perspective

China’s progress against poverty since around 1980 has been much applauded. On Christmas day, 2020, China Xinhua News (the official news agency) released a video claiming that China’s progress against poverty was “the greatest achievement in world history.” One need not go quite that far to agree that reducing the number of poor by something like 800 million (judged by the World Bank’s international poverty line) is a huge accomplishment.

However, to draw useful policy lessons, our applause for China’s success against poverty needs to come hand-in-hand with an acknowledgment of the preceding policy failures. That is not to deny that China has made enormous progress against poverty since Deng Xiaoping unleashed the country’s pro-market reforms in the late 1970s. Rather, it is to remind us of both stages in China’s history post-1949.

Any evaluative interpretation of a measure of social or economic outcomes over time requires consideration of a relevant counterfactual trajectory. My new paper, “Poverty in China since 1950: A Counterfactual Perspective,” argues that the historical record suggests that two relevant counterfactuals for China were geographically and culturally close at hand around 1950, namely South Korea and Taiwan. The armed conflicts, political realignments and economic setbacks within North East Asia during the first half of the C20^th left China, Taiwan and South Korea very poor by 1950, though China was clearly poorer. In all three, the rural populations were especially poor. Very few people in the rural sectors would have met the World Bank’s current international poverty line.

During the 10 years after the end of WW2, two relatively new but very different economic models emerged out of the poverty of North East Asia. The Maoist path, under Communist Party Chairman Mao Zedong, did not appear immediately in mainland China, and there were options and debates, especially over the relative importance of rapid industrialization versus agriculture and rural development. So too for South Korea and Taiwan, but they took a different course to China, namely a form of political capitalism, which was (by the late 1970s) to be influential in Deng’s reform path for China.

Like mainland China, both South Korea and Taiwan had historically been supportive of governmental intervention in production, and this did not fundamentally change after 1950. The main point of departure was in whether the state should actually own the means of production. My new paper argues that, based on the historical record, a version of political capitalism was a viable option for China around 1950. The country took another path, in no small measure reflecting the personality and power of Chairman Mao.

When judged against the development paths of South Korea and Taiwan, the “difference-in-difference” estimates provided by my paper indicate that the Maoist path meant that an extra quarter or more of the Chinese population were living in poverty by the time Deng’s reforms began. The historical data are far less than ideal and need to be handled with caution. My paper provides various checks and tests, including placebo tests using the data prior to Mao taking control of mainland China in 1949; the available historical data go back to 1820. There is no sign of anything one could call a significant impact of the Maoist path prior to Mao taking over.

Acknowledging the data uncertainties, it is nonetheless clear enough that a large share of China’s post-reform reduction in the incidence of poverty was the country’s success in correcting the past failures in its economic policies. While much has been written and debated in efforts to explain China’s success since 1980, there is a lot less to explain when we view the country’s record against poverty within this broader historical perspective.

The new trajectory after Deng’s reforms allowed China to catch up over the following 10-20 years. My main estimates suggest that by about 1990, just after Deng had resigned as leader, the post-reform trajectory of poverty reduction had fully made up for the “lost ground” that I attribute to the Maoist regime. There are data uncertainties here too (notably in merging historical data with new survey-based data). An alternative estimation method suggests this catch-up took an extra 10 years or so.

When my new findings are combined with other evidence from the literature, it also becomes clear that Deng’s initial focus on agrarian reforms was a crucial element of this remarkable pro-poor catchup. Here we have an historical echo of the debates among China’s political elite (then including Deng) back in the early 1950s.