Poverty, Peace, and China: PKSOI and World Bank Perspectives Issue 1

Poverty, Peace, and China:
PKSOI and World Bank Perspectives
by Dr. Mike Spangler, PKSOI
Poverty and Peace
Since 1990, despite slow growth and financial crises, poverty has been falling dramatically in the world. By 2010, the
number of people living under $1.25 per day – the World
Bank’s definition of extreme poverty – fell 50 percent below
the 1990 number, thus meeting the UN target of halving
poverty between 1990 and 2015 (five years ahead of schedule). In developing regions as a whole, the proportion of
people living on less than $1.25 a day fell from 47 percent in
1990 to 22 percent in 2010.1
About 700 million fewer people lived in extreme poverty in
2010 than in 1990. Why? Most of the progress was made
in China. Measured from 1981 when China’s reforms began
to take hold, it managed to lift 660 million (about half of its
current 1.3 billion population) out of extreme poverty, while
in the rest of the world fell much less -- only 10 percent of
the population escaped extreme poverty.2
China’s economic reforms and opening up to foreign investment have produced remarkably strong and steady growth. In
particular, the Chinese government’s bottom-up approach,
gradualism, and piloting of reforms have proven to be pragmatic
and effective. China’s kick-off for reform was modest: eighteen
peasants in Anhui province decided to break away from the centrally-planned economy and signed a secret contract in 1978.
They divided the land at their disposal into small plots, and each
farmer took responsibility for his plot. This compact coupled
with the profit-motive proved to be a powerful incentive. At
the same time, in Guangdong province, private manufacturing
businesses often linked to Hong Kong were launched with the
provincial government’s tacit agreement. Other provinces were
initially skeptical, but Anhui and Guangdong provinces began
producing more by 1981, and others followed suit.
In tandem with China, many developing countries in Asia,
Latin America, and Africa recorded faster economic growth,
while attracting greater foreign direct investment (FDI). These
economies boosted agricultural output and raw material exports
while moving into semi-skilled manufacturing and commodity
processing, expanded their middle classes and bolstered consumer demand.

Competing with these regions for FDI, China nevertheless
maintained its lead as the top destination for corporate expansions through 2012 (attracting $121 billion or 9% of the total
that year) even as a troubled world economy cooled investor
enthusiasm for such deals. Of total FDI made in 2012 ($1.35
trillion), Asia (including China) absorbed about 40%, heralding
further economic gains there in the future.3
Driven by stronger growth in Asia and elsewhere, some of the
largest recipients of World Bank soft loans and grants – available to poor countries with a per capita income under $1,195
– will graduate from this category by the end of this decade.
China led the way by becoming too prosperous to borrow in
1999.4

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