World Bank - Country Economic Memorandum

World Bank- - Report No 24169-CHA CHINA COUNTRY ECONOMIC MEMORANDUM Promoting Growth with Equity September 3 2003 Poverty Reduction and Economic

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Report No. 24169-CHA CHINA COUNTRY ECONOMIC MEMORANDUM Promoting Growth with Equity September 3, 2003 Poverty Reduction and Economic Management Unit East Asia and Pacific Region Document of the World Bank _________________
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EXECUTIVE SUMMARY I NTRODUCTION International experience suggests that the effect of globalization on economic growth, poverty and income distribution can vary significantly among countries, and that its impact depends crucially on national policies. Liberalization of trade and investment since the 1990s has brought high economic growth to China, and China has continued to lift people out of poverty. Inequalities, however, have deepened as the distribution of income and opportunities has shifted in favor of urban areas and coastal regions, leaving rural areas and less developed regions farther behind. Among workers, those with skills have seen their incomes grow much faster than others. This report assesses the possible patterns of inequality in China in the future, and outlines policy options that could help accomplish China ’ s objective of growth with equity. Growth and inequality projections suggest that, if recent trends in widening rural- urban inequality and the disparate growth of per capita incomes across provinces continue, income inequality would rise sharply, bringing the Gini coefficient up to 47.4 by 2020 (compared to 43.7 in 1999), with essentially equal contributions to national inequality from the rural-urban and inter-provincial disparities. For sustaining growth, the report emphasizes the freer flow of resources and goods and services in the economy, to be achieved by domestic market integration and flexibility . The report suggests that the cost of market fragmentation and rigidities is high, and highlights measures to reduce local protectionism, facilitate migration, and commercialize the banking sector. To optimize the results of domestic market integration and promote growth with equity, the report proposes a package of policy actions that would promote new job opportunities, especially in the less developed regions, and raise returns on farm labor and land . Among these, the report highlights investing in people, promoting the diffusion of technology, facilitating urban agglomeration, expanding services and enhancing farmers ’ prospects. Finally, the report tackles the social, economic and fiscal risks that may threaten future growth and distributional performance . In particular, it suggests extending different types of formal social security in both urban and rural areas, for fixing the inter- government fiscal system in order to facilitate the provision of public services, and for managing fiscal risk beyond the government budget and officially recognized debt.
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ii P OVERTY AND I NEQUALITY IN A H ISTORICAL P ERSPECTIVE Large-scale poverty reduction has been one of China ’ s greatest accomplishments during the post-1979 reform period. Amidst enormous structural transformations, which included shifts from central planning to markets, from agriculture to manufacturing and
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This note was uploaded on 09/25/2010 for the course ECO IntEco taught by Professor Andre during the Spring '06 term at UFRGS.

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World Bank- - Report No 24169-CHA CHINA COUNTRY ECONOMIC MEMORANDUM Promoting Growth with Equity September 3 2003 Poverty Reduction and Economic

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