Working Papers   68

Sectoral Composition of China's Economic Growth, Poverty Reduction and Inequality: Development and Policy Implication for Cambodia

Author(s): ROTH Vathana

Published: 01-Mar-2012
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Although country contextual differences and pre-conditions must be carefully considered when attempting to replicate economic growth and poverty reduction models, Cambodia could consider experiences of some Asian countries like China, India, South Korea, Thailand and Vietnam to further improve its poverty reduction strategies and implementation. Cambodia could also utilise foreign assistance and international cooperation by redirecting resources to support activities which have the highest possible effects on poverty alleviation.

In the case of China’s development experience, Cambodia can learn from its dual focus on poverty reduction: committed growth-oriented poverty reduction policies by the government with programmes that address mechanisms to ensure income redistribution and pro-poor inclusive economic growth (e.g. through geographical targeting). China’s transformation from planned to socialist free market economy, and probably to free market when it enters its next cycle of reform, has provided economic leverage for the country’s development taking advantages of increased productivity, trade liberalisation, job creation, foreign direct investment and private sector development (see, for example, Perkins 1988; Harrold 1992; Qian & Wu 2000; Lin 1994; Wang & Yao 2003). The speed of China’s reforms has been gradual and experimental, learning through trial and error before initiatives were scaled-up (Woo 1999). China’s reform started with agricultural development through improved essential hard and soft infrastructure for rural enterprises and shifted to labour-intensive light manufacturing and services. Exports and trade liberalisation have also been the main focus in China’s development agenda (IPRCC 2010).

On the economic front, Cambodia can draw lessons in the areas of trade liberalisation; industrialisation focused on diversification, business competitiveness and urban-rural linkages; agriculture and rural development; and the role of the state in directing and coordinating the development agenda. In terms of sectoral composition of economic growth and poverty reduction and among the four pillars of the economy, garments, tourism, construction and agriculture, agricultural development remains crucial to poverty alleviation efforts as about 80 percent of the population lives in rural areas and relies mainly on agriculture-related occupations. Despite low value-added to GDP, agriculture continues to play a significant role in the overall economy in terms of job creation and income source for the majority of rural households. Enhancement of agricultural and food exports can be beneficial to overall macro-economic growth and help reduce income inequality (Kobayashi et al. 2008; Ravallion & Chen 2007; Ravallion 2009; Dethier & Effenberger 2011). However, this sector has faced serious constraints and problems: low productivity, insufficient irrigation system, poor rural infrastructure, lack of research and development, difficult access to finance and limited access to market information, especially by smallholder farmers. Thus, in the short and medium terms, removing these constraints for a more sustainable, productive, and pro-poor growth oriented rural development should be the number one priority for the Cambodian government, for it will not only help Cambodia diversify its economy but also contribute to reduced poverty and narrowed inequality.

On the poverty reduction front, the Chinese government has led its poverty reduction campaign by channelling funds through government-led institutions at all levels – provincial, district, and county – to help households that are economically poor through developmentoriented programmes such as cash-for-work, micro-credit, training, and science and technology demonstration, and the extremely poor through direct relief and cash (see, for example, Wu & Cheng 2010). Specific poverty reduction schemes have been piloted in targeted communities to ensure that resources are spent wisely and have the most bearing on poor households. 

Cambodia can learn two lessons in particular from the Chinese experience on poverty reduction:

·         Cambodia should strengthen its poverty reduction agency – currently the Council for Agriculture and Rural Development (CARD) is the inter-ministry coordinator on poverty reduction programmes – and allocate more resources for rural development where the majority of poor households are. CARD could be made a more specialised national poverty reduction agency and professional capacity development of key staff should be invested in rather than largely relying on external consultants;

·         More resources should be allocated to building rural physical infrastructure (roads, bridges, land improvement and irrigation) to allow poor households greater and easier access to markets for their income-generating activities. Cash-for-work, where a certain amount of cash is given to poor households in exchange for their labour in infrastructure building, could be further explored. Soft assistance such as training and demonstration on science and technology and production should also be complemented.

 Implementation of the proposed programmes would not be without difficulties and constraints given the economic endowments and development context of both countries. China has transformed itself from one of the world’s poorest countries to the world’s second largest economy. This indicates China’s greater ability to allocate funds for different development initiatives. With a strong and committed administrative system, China is also able to quickly mobilise poverty reduction funds and relief to address the needs of the poor and vulnerable and help them escape the poverty trap (Wu & Cheng 2010).

By contrast, even with rapid economic growth over the last decade, growth in Cambodia has been uneven: poverty rate decreased yet remained high, and inequality increased. This is largely because of lack of resources due partly to corruption and insufficient revenue collection mechanism, weak institutional arrangements and governance, limited capacity of the key poverty reduction agency, heavy political interference in economic matters and aid dependence in which certain donors’ agenda and conditions need to be fulfilled (see, for example, Guimbert 2010). The border conflict with Thailand has further undermined resource allocation for economic and social reconstruction efforts as a substantial amount of money is expected to fund the defence budget. If prolonged, the conflict could also jeopardise the livelihoods of thousands of relocated households who live in or near the conflict zones.

Moving forward, Cambodia’s economic prospects in the short and medium term remain healthy with a projected growth of about 6.7 percent per annum (ADB 2011; IMF 2011). This will translate into, at least by the trickle-down effect, higher income for average Cambodians and gradual ascendance up the development ladder for Cambodia, soon to join the medium income countries (MICs). Nonetheless, achieving MIC status while leaving hundreds of thousands of people in poverty and widened inequality would likely be a hollow victory as these economic and social disparities make shaky foundations for long-term and sustainable growth. Thus, there is a need for the government together with development partners to ensure that poverty reduction programmes are continuously integrated into the broad-based development agenda so as to make the growth process inclusive.    

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