NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

What are some BoP ventures and issues in the world’s most populous nation? China’s extreme income inequality, rich heritage and diverse geographies make for intriguing social venture opportunities during its time of neck-breaking economic growth. While China has become the world’s third-largest economy, 627 million Chinese still lived on less than $2.50 per day in 2005. Poverty is almost exclusive to the countryside- just 70 percent of rural Chinese are below the poverty line versus 18 percent of urban residents. The following are several hot poverty alleviation topics and situations unique to China to get you thinking.

1. Wokai.org: “Facebook for Farmers”

In 2006, the China Banking Regulatory Commission estimated that 2/3 of rural villagers, or 480 million people, had no access to formal credit. Only 10 NGOs in China could independently cover the cost of their loans, while in comparison, India had 1,000 microcredit institutions at the time.

Wokai, a non-profit named after the Chinese words “I open”, is a young, online microfinance program looking to change that imbalance, matching donors with entrepreneurs in China online. Like Kiva.org, lenders contribute capital online to generate funds for small businesses. Similarly to Facebook, Wokai provides a community and network for donors and borrowers. Wokai.org helps potential borrowers such as Sichuan’s Xu Guiqiong, in need of RMB 10,000 (approximately US$1,600) to grow a small breeding business and connect with the outside world. It is dedicated to showing donors the impacts of their micro-loans by linking them with their borrowers. Potential donors can browse for borrowers by industry, read their profiles, and give to a specific borrower. Loan recipients are screened by Wokai’s representatives and local field partner agencies. Since it’s launch in November, 2008, Wokai.org has raised US$140,000 in contributed capital and helped over 270 farmers drive their enterprises.

2. China’s poorest are most affected by disasters intensified by climate change.

Longer periods of drought caused by global warming exacerbate farmer’s economic difficulties in China, where 95% of those living in absolute poverty live in at-risk areas and are already the worst affected by climate change. China’s most urgent priority should be reducing greenhouse gas emissions. Accumulation of greenhouse gases has caused natural disasters across all of China, from intensified drought in northwest Gansu Province to more frequent torrential rain in Sichuan and floods and droughts in Guangdong. Rising sea levels, landslides, more devastating typhoons, desertification, and permafrost thawing are all results of global warming, destroying lands from China’s east coast to Tibet. These intensified disasters create water shortages and destroy homes, farmland and cash crops, eventually leading to increased migration and displaced populations.

3. The hukou system: yesterday’s rural poor become today’s underserved urbanites

China’s household registration system and residency permits, known as “hukou“, ties people to their original place of residence, essentially rendering migrant workers from the countryside illegal immigrants when they move to cities. Hukou distinguishes urban from rural residents and is inherited. Hence, city children will have rural hukous if their parents had them. Depending on the city’s policies, changing from a rural to urban hukou often requires owning landing, prooving stable income sources, or paying a certain amount of taxes- all virtually out of reach for migrant workers. Without urban hukous, China’s rural poor who have moved to cities have restricted or no access to healthcare, public education, social welfare and other services, as cities limit such public programs to local residents. In certain cities, those with rural hukou cannot buy real estate. Until China reforms its hukou system, people originating from the countryside will always be second-class citizens in cities. The number of displaced peoples will only grow with climate change, as people leave drought-stricken villages for work in cities. Migrant workers must continue returning to their villages for adequate healthcare services and sending 58 million children back to villages where they may receive public educations.

4. Lack of social security leads to high savings rates and restrained consumers

China’s famously high savings rates mean that even its low-income households above the BoP often consume below the World Bank poverty line. Nearly half of rural households below the poverty line still save. In comparison, only 1/3 of households in the United States’ bottom fifth save. Research on the reason behind Chinese’ high savings rates cites government’s lack of a strong social security system, education costs and gender imbalance towards males. Economic vulnerability exacerbates poverty in rural China, as farmers are exposed to price shocks and workers’ pay is often delayed. Until China creates a more secure economic insurance system and encourage more balance between saving and consumption, BoP markets may be difficult to reach.

5. Newly discovered tourist sties are driving growth in poor regions.

While migration to mega-cities continues apace, building tourism industries in smaller cities has become an increasingly viable alternative. Poor regions are opening facilities to accommodate tourists to well-preserved ancient landmarks and support their economies. Gansu, one of China’s poorest provinces, is undergoing a $38.4 million sustainable tourism project with loans from the World Bank.To welcome tourists to its section of the Silk Road, Great Wall and ancient monastaries and geological parks, Gansu has instituted reconstruction projects and infrastructure overhauls. Likewise, tourism has brought fresh inflows to central China’s city of Pingyao, which has a poor, agricultural-based economy and is water-scarce. Since its Ming dynasty wall, preserved Ming and Qing residences and ancient city streets helped it become a World Heritage Site in 1997, shops and hotels have emerged while new construction jobs have been created. These influx of tourists and building poor cities’ tourism industries has led to employment and social and economic development.