China’s approach to eradicating poverty

‘Investing in new business sectors, such as rural tourism, is important’. Image: REUTERS

Poverty is a global issue and poverty eradication must be a common task for those wishing to improve global governance. In Transforming our world: the 2030 Agenda for Sustainable Development, the UN says: “We recognize that eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development.”

Guan Tzu, an ancient Chinese economist said: “When the granaries are full, they will know propriety and moderation; when their clothing and food are adequate, they will know the distinction between honour and shame.”

Poverty eradication will help reduce inequality and facilitate inclusive growth. If people living in poverty can shake off their plight, it can expand market capacity, enhance the specialized division of labour and facilitate a more efficient and unified large market. Moreover, the resulting strengthening of marginal propensity to consume (MPC) will inject new vigour and energy into economic growth.

As an ancient Chinese proverb goes: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” All sustainable and effective poverty alleviation measures ultimately rely on industrial development. Industrial development in poverty-stricken areas in China is hindered by many restrictions. We must raise the low level of industrial development in these regions and break away from the vicious circle of low-level industrial development, an unattractive investment environment and degrading industrial development.

To encourage self-driven growth and the development of a local market and businesses, it is imperative to introduce external market forces. Regional industrial funds can guide and integrate resources, such as funds, technologies and talent, for investment in market entities in specific regions. Industrial investment funds, which combine the industrial capital and resources of these areas, can improve employment opportunities for people in poverty and financial input in these areas, realizing poverty eradication in a fundamental way.

Efforts can be made to build capital strength for local enterprises and improve their corporate governance structures and management. For industrial development, steps can be taken to: advance the transformation and upgrading of traditional agriculture; cultivate new business sectors in rural areas; promote the integration of primary, secondary and tertiary industries; and bolster competition in rural industries. When it comes to society, endeavors can be made to optimize the investment environment and improve financing for small and medium businesses.

Newly-built residential buildings are seen next to the partially-frozen Songhua River and a bridge in Jilin, Jilin province February 3, 2015. Image: REUTERS/Stringer

To help remove the restrictions hindering the industrial development of poverty-stricken areas, the Chinese government has established two industrial poverty-alleviation funds. With the current total strength of 15 billion Renminbi yuan and the duration of 15 years, the two funds are expected to operate at a larger scale in the future. Both funds, operated and managed by State Development & Investment Corporation (SDIC), will follow market-oriented methods.

It is necessary to go off the beaten track and find innovative investment approaches for fund investment in impoverished areas. These might include integrating upper-stream industry chains with region-specific resources by cooperation with selected leading local enterprises, so that industries with local characteristics can move from disorderly competition towards benign development.

Investing in new business sectors, such as rural tourism, eco-agriculture and rural e-commerce, is also important. Furthermore, employing diverse investment methods, like sub-fund, debt investment and optimized direct investment, can attract more social investment for poverty alleviation and solve the problem of difficult and expensive financing for small and medium enterprises. If funds take advantage of their lengthy duration and low costs; work to support the talent, technological and managing advantages of leading enterprises; and invest in the resources and industries that demonstrate the local characteristics of the area, they can promote the ability of poverty-stricken areas to self-develop.

Poverty eradication is a common cause for all of society. China has developed a unique approach to this challenge by perpetually eliminating poverty through industrial development – a method of great significance for developing countries. Socially responsible enterprises must work together to declare a war on poverty and realize the great goal of “eradicating poverty in all its forms and dimensions” in the world.

Written by: Wang Huisheng, Chairman, State Development & Investment Corporation (SDIC)

In: webforum

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