Financial Policies and Financial Policies and Financial Management to Financial Management to Reduce Poverty in ChinaReduce Poverty in China

Chu LiminChu LiminAgricultural Department, Ministry Agricultural Department, Ministry

of Financeof FinanceOctober 2007October 2007

1. Financial policy 1. Financial policy framework for poverty framework for poverty reductionreduction• Financial policies and inputs targeting poor Financial policies and inputs targeting poor

areas and poor population feature in their dareas and poor population feature in their diversity and magnitude. In general, pro-pooiversity and magnitude. In general, pro-poor financial policies include the following four financial policies include the following four componentsr components ：：– --- Financial transfer to specific regions--- Financial transfer to specific regions

• Including financial transfer to areas with poor counties anIncluding financial transfer to areas with poor counties and townships, old revolutionary basis areas and remote and townships, old revolutionary basis areas and remote and bordering areas.d bordering areas.

1. Financial policy 1. Financial policy framework for poverty framework for poverty reductionreduction– -------- 区域性开发政策。区域性开发政策。 Regional development policiesRegional development policies

• Including western development, ecological construction like graiIncluding western development, ecological construction like grain-for-green, and other effective policies.n-for-green, and other effective policies.

– --------Public service policesPublic service polices• Equalization of access to basic public services for poor areas. IncEqualization of access to basic public services for poor areas. Inc

luding financial security for compulsory education, public health luding financial security for compulsory education, public health development and, new cooperative medical system, social securdevelopment and, new cooperative medical system, social security system (including minimum allowance) and relief system in rity system (including minimum allowance) and relief system in rural areas.ural areas.

– --------Poverty targeted financial supportPoverty targeted financial support

２．２． Patterns and features of managPatterns and features of management over poverty reduction fundsement over poverty reduction funds

• 2.1. Patterns of providing pove2.1. Patterns of providing poverty targeted finance rty targeted finance

• ----Supply-orientation----Supply-orientation– According to the Program According to the Program

of Poverty Reduction in of Poverty Reduction in Rural China (2001-2010), Rural China (2001-2010), central finance and central finance and provincial finance provincial finance increased inputs to poverty increased inputs to poverty year by year. From 2001 to year by year. From 2001 to 2007, central finance 2007, central finance budgeted 85 billion RMB budgeted 85 billion RMB for poverty reduction, and for poverty reduction, and provincial finance devoted provincial finance devoted more than 21 billion RMB more than 21 billion RMB

２．２． Patterns and features of managPatterns and features of management over poverty reduction fundsement over poverty reduction funds

• 2.2. Patterns of manageme2.2. Patterns of management over poverty targeted finnt over poverty targeted finance ance

• ----Multiple managing ----Multiple managing agenciesagencies– The agencies include The agencies include

Ministry of Finance, State Ministry of Finance, State Development and Reform Development and Reform Commission, State Ethnic Commission, State Ethnic Affairs Commission, LGOP, Affairs Commission, LGOP, Ministry of Agriculture, Ministry of Agriculture, Ministry of Forestry, etc Ministry of Forestry, etc

• ----Take account of ----Take account of objective factorsobjective factors – The factors include poor The factors include poor

population, farmers’ net population, farmers’ net income, local financial income, local financial power and policy power and policy adjustments adjustments

２．２． Patterns and features of managPatterns and features of management over poverty reduction fundsement over poverty reduction funds

• 2.2. Patterns of management over 2.2. Patterns of management over poverty targeted finance poverty targeted finance

• --------Provincial levels play key roleProvincial levels play key roles in identifying projects and mans in identifying projects and managing fundsaging funds– Responsibility, tasks, funds aResponsibility, tasks, funds a

nd power regarding the finannd power regarding the finance reach provincial levels of gce reach provincial levels of governments. Its applications overnments. Its applications are done bottom-up.are done bottom-up.

• --------Manage funds by special --------Manage funds by special accounts and pay after reportiaccounts and pay after reportingng– The funds are passed amoThe funds are passed amo

ng state treasury agencies,ng state treasury agencies, managed by special acco managed by special accounts, delivered in a uniforunts, delivered in a uniform way by state treasury om way by state treasury or by reporting system.r by reporting system.

２．２． Patterns and features of managPatterns and features of management over poverty reduction fundsement over poverty reduction funds

• 2.2. Patterns of manag2.2. Patterns of management over poverty tarement over poverty targeted financegeted finance

• ----Multi-department an----Multi-department and multi-level monitoringd multi-level monitoring– 1.Monitored by auditing a1.Monitored by auditing a

genciesgencies ；；– 2.Monitored by financial 2.Monitored by financial

monitoring agenciesmonitoring agencies ；；– 3. Monitored by project i3. Monitored by project i

mplementing agenciesmplementing agencies ；；– 4. Monitored by the exteri4. Monitored by the exteri

or, including public opinioor, including public opinion and the mass n and the mass

Management over poverty reduction funds Management over poverty reduction funds is generally featured as followsis generally featured as follows ：：•First, number of poor population and poverty severity are taken as the most important criterion to distribute funds in a just and equal way.

•Second, rights to funds are decentralized from central government, leaving poverty reduction funds at the disposal of local governments who know more about loc

al reality. Third, the funds

are spent to address key

aspects of poverty, e.g. refreshing the

images of poor areas, raising the poor’ s income,

human quality and capability

Fourth, management over funds is moving down to lower

levels of government and

monitoring instruments are improved over

time.

2.3. Problems with the 2.3. Problems with the managementmanagement

• ----No positive ince----No positive incentives to fund distrintives to fund distributionbution

• Distribution of funds by Distribution of funds by objective criterion tends objective criterion tends to lose positive incentivto lose positive incentives. Selecting key poor ares. Selecting key poor areas by county as the baseas by county as the basic unit tends to lose flexiic unit tends to lose flexibility.bility.

2.3. Problems with the management2.3. Problems with the management

• ----Dilemma of targ----Dilemma of targeting eting

• It is swinging between sIt is swinging between support to poor regions aupport to poor regions and to poor people, and and to poor people, and also between support to tlso between support to the absolute poor and to he absolute poor and to low incomers.low incomers.

2.3. Problems with the management2.3. Problems with the management

• ----Managers too ----Managers too far on top of the far on top of the pyramid pyramid

• Funding projects, identifieFunding projects, identified and managed by provincd and managed by provincial governments, fail to meial governments, fail to meet local demands, and prolet local demands, and prolong the application and aong the application and approval of projects througpproval of projects through multiple levels of adminih multiple levels of administration, to keep projects fstration, to keep projects from working on time.rom working on time.

2.3. Problems with the management2.3. Problems with the management

• ----Composition of ----Composition of actors involved is actors involved is unreasonableunreasonable

• Governments are doGovernments are dominant, with the pominant, with the power especially convewer especially converged at senior levels, rged at senior levels, while non-governmewhile non-governmental organizations anntal organizations and poor citizens are wd poor citizens are weak.eak.

3. Guidelines for the new era3. Guidelines for the new era

3.1 Maximize the functions of public finance to equalize access to basic public services in poor areas and realize sustainable development----Increase transfer to poor areas and give them more financial power----Improve institutional system for urban-rural balanced development, and prioritize support to poor rural areas----Strengthen security of public products and services for rural areas and tilt it to poor rural areas

3.2 Continue to increase finance for poverty reduction

Finance for poverty reduction includes the inputs and management of money and more importantly the political will of government. Therefore, for higher efficiency of the finance, it requires on the one hand improving policies and strategies up to practical needs, and on the other enhancing institution, monitoring and management. Entering the new century, major changes have taken place in poverty reduction for rural China, which decides the next step of finance for poverty reduction should be performed with bigger amount, better management, clearer guidelines, improved policies, and innovated mechanism, so as to be more effective.

3.2 Continue to increase finance for poverty reduction

• ----Expand the connotation of ----Expand the connotation of development-oriented poverty reductiondevelopment-oriented poverty reduction– With the rural minimum allowance system and With the rural minimum allowance system and

equalization of access to public services in place, equalization of access to public services in place, the government should shift from targeted to the government should shift from targeted to comprehensive poverty reduction, by expanding comprehensive poverty reduction, by expanding the focus from targeted spots to areas and the focus from targeted spots to areas and communities. The priorities here should be communities. The priorities here should be capacity building for poor people and poor areas to capacity building for poor people and poor areas to develop and to fight against poverty.develop and to fight against poverty.

3.2 Continue to increase finance for poverty reduction

• ----Reset the objectives and tasks----Reset the objectives and tasks

– The objectives should shift from subsistencThe objectives should shift from subsistence to income increase and reduction of gaps. e to income increase and reduction of gaps. The tasks should be to improve infrastructuThe tasks should be to improve infrastructure conditions, human quality, capability and re conditions, human quality, capability and economic growth.economic growth.

3.2 Continue to increase finance for poverty reduction

• ----Identify priorities of poverty ----Identify priorities of poverty reductionreduction Apart from village-based Apart from village-based

development, infrastructure development, infrastructure construction, development of locally-construction, development of locally-special industry with comparative special industry with comparative advantages, resettlement and training advantages, resettlement and training for labor transfer should also be the for labor transfer should also be the priorities.priorities.

3.2 Continue to increase finance for poverty reduction

• ----Innovate mechanism----Innovate mechanism– To address the defects of management over poverty redTo address the defects of management over poverty red

uction finance, financial agencies at various levels have fuction finance, financial agencies at various levels have for years explored and gained a lot on how to improve thor years explored and gained a lot on how to improve the mechanism and innovate the pattern of management. e mechanism and innovate the pattern of management.

Decentralize approval of projects

Appropriation in advance

Reform the approach to deliver subsidized-interest loans

Pilots of award and subsidy funds

Performance evaluation

Build an information system

Pilots of mutual financing at village level in poor villages

Pilots of integrating resources for clustered development

3.2 Continue to increase finance for poverty reduction

• For the next step, focus should be given to:For the next step, focus should be given to:– Exploring the mechanism to coordinate poverty reduction finExploring the mechanism to coordinate poverty reduction fin

ance and other finance supporting agriculture and rural areas;ance and other finance supporting agriculture and rural areas;

– Building an incentive mechanism for the distribution of poverBuilding an incentive mechanism for the distribution of poverty reduction funds for it to be result-driven;ty reduction funds for it to be result-driven;

– Decentralizing funds, responsibility, management and decisiDecentralizing funds, responsibility, management and decision of poverty reduction projects to county level and establishon of poverty reduction projects to county level and establishing mechanism to select project according to local demands;ing mechanism to select project according to local demands;

– Setting up in-and-out mechanism for key poor counties and pSetting up in-and-out mechanism for key poor counties and pushing for participatory approaches.ushing for participatory approaches.

3.2 Continue to increase finance for poverty reduction

• ----Strengthen management to ensure ----Strengthen management to ensure safety and effectiveness of financesafety and effectiveness of financeExplore the ways of direct appropriation of Explore the ways of direct appropriation of

poverty reduction funds to expand the poverty reduction funds to expand the scope of government procurement for scope of government procurement for poverty reduction funds. Improve the poverty reduction funds. Improve the

reporting system.reporting system. Complete mechanism of project Complete mechanism of project management and implementation. Render management and implementation. Render

the bidding for projects more open and the bidding for projects more open and transparent. Bidding should be strictly transparent. Bidding should be strictly

performed for big projects. Small projects performed for big projects. Small projects can be decided by village-level organizations can be decided by village-level organizations

participated by local residents.participated by local residents.

Improve approaches of managemeImprove approaches of management, improve the information system nt, improve the information system for management and monitoring, sfor management and monitoring, set up cross-departmental reporting et up cross-departmental reporting and coordination mechanism for fuand coordination mechanism for fu

nds and project managementnds and project management

Organize effective iOrganize effective inspection and moninspection and monitoring systems, imptoring systems, improve bulletin systerove bulletin syste

ms.ms.

ThankThanks !s !