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The Implications of the Inclusive Growth and Development Aid Agenda of the Peoples Republic of China for Poorer

Countries in Asia:

The Case of Bangladesh


Paper Presented at the Regional Workshop on SOCIAL INCLUSIVENESS IN ASIAS EMERGING MIDDLE INCOME COUNTRIES Mustafa K. Mujeri Zulfiqar Ali Siban Shahana 13 September 2011 Jakarta

Focus of the paper


1. SOCIO-ECONOMIC SIMILARITIES AND DIFFERENCES IN PRC AND BANGLADESH 2. POVERTY REDUCTION IN PRC AND BANGLADESH: UNDERSTANDING DIFFERENTIAL PERFORMANCE

3. PRCS ECONOMIC COOPERATION AND DEVELOPMENT ASSISTANCE TO BANGLADESH: IMPLICATIONS FOR POVERTY REDUCTION IN BANGLADESH
4. LESSONS FOR BANGLADESG FROM PRCS POVERTY REDUCTION SUCCESS

Socio-economic Differences
Indicators Annual population growth (%) Population density (per sq. km.) Urban population (%) Annual GDP growth rate (%) GDP per capita, constant 2000 $ Agri. value added, % of GDP Gross investment, % of GDP Bangladesh 1980 2.68 694 15 4.8 226 32 14 2000 1.82 1081 24 5.9 335 26 23 1980 1.25 105 20 7.8 186 30 35 PRC 2000 0.79 135 36 8.4 949 15 35

Life expectancy at birth, years

48

61

66

71

Differences in Institutional Conditions


Bangladesh
-

PRC
started with a command economy comprehensive land reforms resulted in dramatic change in asset distribution economic activities were influenced through state owned enterprises (SOEs), and the township and village enterprises (TVEs) Structural change in PRC has followed the classical pattern with transformation from primary (agriculture) to secondary (manufacturing) activities; over the last 25 years, manufacturing had doubled its share of employment and tripled its share of output in GDP as a more equal society, economic policies in PRC had a very different qualitative impact than similar policies in a more unequal society as in Bangladesh

started with a traditional mixed economy since independence Expanded private sector during the phase of globalization, and reduced state regulations since the 1990s Macroeconomic policies focused more on economic stability no significant land (and rural) reforms and/or other strategies to bring about substantial redistribution of assets The structural move in Bangladesh has been mainly from agriculture) to tertiary (services) sector; The share of agri. in GDP has fallen from more than 60% to around 20% over the last two decades but its share in employment continues to be nearly 50%

Socio-economic Similarities
Despite the above differences, both Bangladesh and PRC face rather similar economic problems in certain respects, such as:
Sustainability of growth and Emerging inequalities

Economic growth in both countries have been associated with: sharp increases in spatial and vertical inequalities greater fragility in incomes among the poor and the marginalized groups adverse shifts in several climate change indicators However, while the policy response in PRC has been to reduce inequality through changes in tax rates, greater public investment in western and interior regions and improving social security benefits, inequality-reducing policies in Bangladesh are yet to receive high priority within the policy agenda.

Poverty Reduction in PRC and Bangladesh: Understanding Differential Performances

PRC has made remarkable progress in reducing poverty since 1978; The number of the absolute poor in rural areas dropped from 250 million in 1978 to 23.65 million in 2005, representing a decline in poverty incidence from 30.7 percent in 1978 to 2.5 percent in 2005; However, there has been worsening of inequality in PRC over the last three decades; Gini-coefficinnt of consumption in PRC has risen from 0.30 in 1978 to 0.45 in 2002; Data also suggests significant increase in rural-urban income differential over the same period;

Poverty Reduction in PRC and Bangladesh: Understanding Differential Performances

The incidence of poverty has also declined in Bangladesh over the past several years; As the estimates indicate, income poverty has declined from 56.6 percent in 1991-92 to 31.5 percent in 2010; However, compared with the poverty reduction achievement of PRC, Bangladeshs performance is less spectacular.

Social and Environmental Poverty in PRC and Bangladesh


The progress in human and social development in PRC has also been remarkable since 1978; The level of peoples education and health condition has significantly improved since reform, which has contributed to better human capital accumulation in PRC; Average years of schooling (above 15 years of age) increased to 7 years in 2000 from 4.6 years in 1982.; The share of illiterate population also declined substantially from 22.8 percent in 1982 to 6.7 percent in 2002 reflecting a decrease from 231 million to 85 million; Infant mortality decreased from 37.6 percent in 1982 to 28.4 percent in 2000; The average life expectancy increased to 71.4 years in 2000 from 67.8 years in 1981; All relevant indicators demonstrate rapid progress in human and social development, and the complementary relationship between economic and social progress in PRC.

Social and Environmental Poverty in PRC and Bangladesh


Bangladeshs performance in reducing social poverty has been mixed; Child nutritional status reveals that a high proportion of children in the country currently suffers from malnutrition; However, Improvement has taken place in the case of mortality indicators: under-five mortality per thousand live births declined from 151 in 1990 to 73 in 2010; Infant mortality rate per thousand live births also declined from 94 to 41 during the same period; Access to safe drinking water is satisfactory at its current state (97.8 percent); Access to sanitary toilet is, however, still poor with only 54 percent of the total population enjoying such facilities.

Institutional Set up for Poverty Reduction in PRC and Bangladesh


There were three distinct phases of poverty reduction approaches in PRC: Improving farmers access to assets (prior to 1978): poverty reduction in this phase was mainly realized by: Increasing farmers access to land, physical assets, financial service, technological extension services, and establishing a community-based social security system Achievement of overall economic growth and improvement in the terms of trade of agriculture (between 1978 and 1984): This phase included: Continuous high economic growth, transfers of rural labor force to non-agricultural enterprises, speeding up urbanization, implementing export oriented open-up policies, and improvement of human capital Targeted programs combined with a trickle-down development strategy (after 1985): In this phase, regionally targeted programs; macroeconomic adjustment to permit and promote the participation of the poor; and targeted poverty reduction plan were implemented to lift the remaining rural poor out of poverty.

Institutional Set up for Poverty Reduction in PRC and Bangladesh


Bangladesh, on the other hand, has a long history of implementation of anti-poverty programs. The Rural Public Works Program (RPWP) has been an important policy instrument for the government since the early 1960s to augment employment and income of the rural poor especially during the lean agricultural seasons. The government is currently implementing as many as 87 different programs (including social safety nets) through different ministries/departments in order to support the disadvantaged people including women, children, elderly, and the disabled. These programs include: cash transfer programs; food security programs; micro credit for self-employment; and funds for poverty alleviation. In order to support these programs, an allocation of nearly Tk. 226 billion was made in the financial year 2011-12, accounting for about 14 percent of the national budget and 2.5 percent of the countrys GDP. Some of the important cash transfer programs include: 100-day employment generation scheme, old age allowance, widow allowance, disability allowance, and others Major food assistance programs include: Food for Work, VGD, Vulnerable Group Feeding (VGF), and others.

Institutional Set up for Poverty Reduction in PRC and Bangladesh Various studies point out that the existing social safety net programs (SSNs) in Bangladesh provide limited coverage which cannot cope with the magnitude of extreme poverty and marginality that exists in the country. The SSNs cover about 15 million people, and consequently fall drastically short in coverage for about 24 million people who belong to the extremely poor category. Furthermore, the SSNs cover mostly the rural poor, whereas the number of urban extreme poor is also large and the nature of urban poverty is more severe than rural poverty in certain respects. Also, there is no integrated national policy for social protection and safety net programs in Bangladesh. Therefore, the extent, nature and mechanisms of most of the safety net programs undergo changes in an ad hoc manner especially with the change of the government. There is also a lack of integration and coordination among various safety net programs and the providers.

PRCS Economic Cooperation and Development Assistance to Bangladesh


Chinese assistance to Bangladesh resulted in setting up of power plants, fertilizer factories, six friendship bridges, construction of modern convention center, modernization of marine fisheries, etc. Provided US$ 6 million for capacity building of Bangladeshi civil servants Providing training on criminal investigation techniques and forensic tests Agreed on providing support for peaceful use of nuclear energy in the fields of medicine, agriculture, and biotechnology Preferential access to 84 items into China Cooperation in solving water problems and in management of different rivers Technological assistance to Disaster and Flood Warning Center Defense cooperation as well

PRCS Economic Cooperation and Development Assistance to Bangladesh


Bangladesh is the third largest trade partner of PRC in South Asia (Bilateral trade US$$ 3.19 billion in 2006) During 2010 summit, the framework of Closer Comprehensive Partnership of Cooperation (2010) was signed which includes: Agreement on Economic and Technical Cooperation Framework Agreement on Providing Preferential Loan Protocol on Remitting the Bangladesh Interest-free Loan due in 2008 Exchange of Letters on the construction of the seventh Bangladesh-China Friendship Bridge

Trends in PRCs Assistance to Bangladesh


Trends in Total Disbursement(m US$)
35 30 25 20 15 Year Total

10
5 0

Lessons from PRCS Poverty Reduction Success: Implications for Bangladesh PRCs poverty reduction has been a process of constant learning and experimentation PRCs Key Factors of Success
Stable political environment and rapid economic growth Growth of agricultural GDP Development of non-state economic sector Strong Government commitment throughout the implementation of the Plans Supportive administrative system at all levels

Lessons from PRCS Poverty Reduction Success: Implications for Bangladesh


Economic growth is critical Targeting and participation of the poor matter Success needs supplementing area-based poverty reduction efforts with a household-oriented approach Basic insurance acts as complement to poverty reduction effort Setting clear objectives is important Human development deserves special emphasis Adequate allocation of resources for the local governments is critical Effective coordinated approach is the key Rural-urban segmentation obstructs poverty reduction Realizing the potential of migration needs more explicit recognition Adapting to climate change is important for the poor

Thanks