While basking in the achievements of its successful poverty reduction campaign, China still faces daunting challenges as new problems surface.

Poverty reduction and elimination was the central topic at the Shanghai Conference on Scaling up Poverty Reduction, which concluded on May 27.

China has made great strides in poverty reduction since 1990. According to the World Bank, the number of Chinese living on US$1 or less per day decreased dramatically from 33 per cent of the nation's total population in 1990 to 16 per cent in 2000.

China's poverty-stricken population was halved between 1990 and 2000, while India lifted one-sixth of its poor people out of abject poverty over the same period.

This spectacular accomplishment is largely attributable to the following factors:

The market reform in China's economy, which started in 1978, has greatly boosted productivity.

The open-up policy has not only spurred rapid economic growth by attracting large sums of foreign investment and boosting vigorous exports, but facilitated domestic reform, which is conducive to the running of a market economy.

Sustained economic development relies on continuous social investment. In this regard, China has remarkably narrowed its digital gap with that of developed countries.

For example, there were only six fixed-line telephones per thousand residents in 1990, but by 2001 the number soared to 137. In 1990, few Chinese had heard of the Internet, but by 2001, 2.6 per cent of the population was regularly on-line.

Thanks to the vibrant economic advancement over the past two decades, China has scored stunning achievements in its poverty reduction efforts.

However, some historical problems remain unresolved and new ones have cropped up.

Specifically, there are three main problems.

First, the Gini coefficient, a standard measure of income inequality, is still yawning, standing at 0.403, which is higher than the 0.40 threshold generally viewed as a cause of concern.

Corruption in the economic transition from a planned economy to a market one, the so-called "power abuse for money" in which some corrupt officials collude with entrepreneurs to grab illegal gains, has further widened the gap between them and ordinary people.

The monopoly in industries such as tobacco has led to wide income disparity between their staffs and those of free-wheeling industries.

Second, the wealth gap between cities and rural areas, instead of abating, is growing.

Inadequate investment in rural public education has left rural residents receiving less than half the educational opportunity of their urban counterparts.

Regional barriers restricting labour movement have further reinforced the huge gap between cities and rural areas.

Finally, the swelling regional disparity within China is to a great extent attributable to the economic and geographic effects brought about by international trade, which favours coastal areas over hinterland because of transportation and other cost-effective factors.

In order to consolidate the gains made so far and ultimately help eliminate poverty altogether, proper policies must be implemented to tackle these problems.

Economic reform should be further deepened to prevent corruption and create a business-friendly environment in which fair competition prevails.

Government should break up industrial monopolies and encourage competition. It is high time to enact an anti-monopoly law.

We should also have a thorough reassessment of our economic development strategy, especially the industry policy and industry structuring.

For economic growth to bring tangible benefits to people, we must base its growth on the potential to generate jobs and increase income.

China, with a deep pool of labour, should set the labour-intensive industry as a priority in its industrial structuring.

Moreover, industrialization and urbanization should be pushed ahead in rural areas to free surplus farmers from those limited lands and encourage them to move to cities, thus narrowing the income gap between urban and rural residents.

Other measures, such as setting up a land transfer market in which farmers can trade their land, and boosting investment in the rural education and public healthcare systems should be encouraged.

As for the regional disparity resulting from the open-up and reform policy, we should consider population restructure by encouraging migration from the western regions to the east, for which a social and legal environment favourable for free labour movement is badly needed.

The author is director of the World Economy Research Institute of Shanghai-based Fudan University.

(China Daily June 1, 2004)