China is the world’s largest developing economy. In 1978, 97.5% of the rural population lived in absolute poverty. Since then, the Chinese government has considered the issue of mass poverty, particularly in the rural regions of southern and western China, to be one of its central focuses. To combat rural poverty in China, the government has adopted the Targeted Poverty Alleviation Strategy (TPA) (i.e. industrialization, social security, education, housing and government compensation for the neediest families). From 2012-2019, rural poverty’s average annual reduction rate reached 51.06%. Finally, in 2020, the government announced the elimination of absolute poverty. Despite these successes, relative poverty remains extremely prevalent in China’s rural south and west, especially in ethnic minority areas. As things stand, the democratization of the Internet appears to be the next challenge to overcome in the fight against rural poverty in China.
Digital Finance in China
In 2021, China had 1.011 billion Internet users, comprising 71.6% of its total population. As smartphones and the Chinese Internet spread, so do digital finance services such as mobile payment, online banking, online insurance and online investment tools. All of these increase the accessibility of formal financial services for impoverished people who previously lacked access to them, according to PLOS ONE.
China leads the world in the ubiquitous use of digital financial services. According to PLOS ONE, for each point increase in China’s digital finance aggregation index (DFAI), the probability of rural absolute poverty decreases by 10.27% while the probability of rural relative poverty decreases by 18.31%. Specifically, digital finance alleviates rural poverty in China by spurring four developments: the decrease of credit constraints, the increase of access to information, the expansion of social networks and the promotion of entrepreneurship.
The rural poor often struggle with the high cost of agricultural loans from traditional banks. Digital finance solves this issue by compiling massive amounts of online user information to grant loans much more liberally than traditional banks ever could. Easier access to loans and capital has the effect of promoting rural entrepreneurship. Next, digital financial services offer the rural poor timely information about agricultural production, employment opportunities, etc. which help them remain economically stable. Finally, these services also provide social capital, allowing the rural poor to network with friends and family. One example is WeChat Pay, which applies the Chinese tradition of gifting red envelopes to the digital market. This increases the circulation of online money and raises income for the rural poor.
The Benefit of Internet Policies in Rural Areas
The ethnic minority areas of Aba, Ganzi and Liangshan in Sichuan Province are the most economically underdeveloped in Southwest China. It would be appropriate to use those areas as a case study of how government investments in the Internet have produced positive economic effects. Central and municipal governments have put money toward a Communication Infrastructure Investment (CII) with the intention of developing the Internet in underdeveloped regions, thus facilitating e-commerce and other economic activity.
Indeed, in recent years, villagers in ethnic minority areas have begun selling agricultural products on popular e-business sites like Taobao, Alibaba, Amazon and Jingdong, which have helped lift sellers out of poverty. The Internet also provides platforms and venues for industries like health and tourism. Data analysis from the years 2000-2018 indicates that pro-Internet investments and policies in Aba, Ganzi and Liangshan are positively correlated with local GDP for years one to four years and per capita income for the entire time.
Playing a Crucial Role
The Internet proved especially useful during the COVID-19 crisis. According to the China Internet Network Information Center, 98% of people in rural areas living in poverty had access to fiber-optic Internet in 2020, compared to only 70% in 2017. Users sold their agricultural products online to maintain a stable income amidst COVID-19 layoffs and the slowing of business. The Internet also allowed them to donate money, fostering a community-based financial support system in rural regions.
Overall, it appears that the Internet plays a vital role in combating rural poverty in China. It provides new platforms that allow people to receive financial capital while enabling entrepreneurs to market and sell their products.
– Eric Huang