Coordinating pro-poor development policies and social protection programs

China (Dixon and Gill 2021). A larger share of income for the bottom of the distribution could spur a more consumption-based growth model, as poorer households tend to spend a larger share of their marginal income. In addition, a more equal distribution of economic opportunities would ensure that China loses less of its human capital potential at a time when its labor force has started to decline. Closing gaps in access to quality public services will be key to ensuring equal economic opportunities and increased social mobility for future generations. In addition, progressive tax systems can play an important role in addressing inequality and relative poverty, as they do in Organisation for Economic Co-operation and Development (OECD) countries. A study shows that the personal income tax in China is, indeed, equalizing, but its effect on inequality is minor (Lustig and Wang 2020). Progressive personal income tax accounts for only 5 percent of revenue in China, while yielding close to 15 percent, on average, in the OECD.

The Chinese authorities are well aware of the challenges lying ahead to sustain the gains in poverty reduction. At the beginning of 2021, the government announced a strategic shift from poverty alleviation to rural revitalization, transforming the key institution, the Leading Group on Poverty Alleviation and Development, into the National Rural Revitalization Administration. In adopting this approach, the government has confirmed the priority it continues to place on the social and economic vulnerabilities experienced by China’s rural population. Concerned with the persistently high rural-urban income gap, the rural revitalization strategy focuses both on modernizing China’s agriculture to boost agricultural productivity growth and make it environmentally more sustainable, and on modernizing the rural economy in general, including through improved public services and the creation and retention of nonagricultural rural jobs. To buttress the commitment to the rural areas and households that only recently rose above the absolute poverty threshold, the authorities have committed to maintain funding levels provided during the poverty eradication campaign for a transition period of five years. This commitment will ensure that the rural revitalization strategy is adequately resourced with central and provincial government transfers in the face of still very limited own fiscal resources in rural villages and counties.

While the continued focus on rural areas is clearly justified, living standards in urban areas also need to be closely monitored. Nationwide, about one-third of the poor in 2018, identified using the US$5.50 poverty line, lived in urban areas, and this share is increasing. Therefore, the emphasis on rural revitalization should be complemented with efforts to support job creation and strengthen social protection mechanisms for the urban poor, including many informal and migrant workers for which consumption poverty is significant (Guo, Tan, and Qu 2018). The required policy mechanisms will differ between the rural and the urban poor, given that the latter tend to be more integrated into the modern economy and face different types of shocks, such as temporary unemployment, loss of shelter, and additional spending needs, such as on public transport and shelter, as well as on education and health services for those without urban hukous. At the same time, their poverty spells may be more transient than structural, requiring more limited periods of assistance to bridge temporary difficulties and prevent a downward spiral.

The changing profile of China’s poor during the next stage of development highlights the need to better integrate targeted poverty reduction and institutionalized social protection policies. As shown in chapter 4, although the coverage of social safety nets in China has broadened significantly, informal and migrant workers fall outside most government support policies and thus remain highly vulnerable.2 Social assistance programs such as the Di Bao could help here. They mobilize a similar fiscal effort (about 0.2 percent of gross domestic product [GDP] per