How do government microloan programs help China to win the battle against poverty? Field research in Wuding, Yunnan

Ashley finished this research under the guidance of China House. China House is a Chinese NGO aiming to integrate China into global sustainable development. It does research to understand overseas Chinese businesses and Chinese communities in the Global South, mainly in Africa, Latin America, and Southeast Asia. With such understanding, it conducts conservation and social projects to connect overseas Chinese with the sustainable development of the local community. It also hopes to cultivate a new generation of Chinese global citizens by engaging them in these research and projects to promote the development of both China and the rest of the world.

On November 23rd, 2020, the Chinese government announced that all 832 impoverished counties in China had been removed from the poverty list.

Poverty alleviation and the financial upliftment of impoverished individuals have been a priority of the Chinese government since 2015. However, lifting 98.99 million people out of poverty is a challenging task — the government must address a multitude of rising demands: living environment, education, healthcare, and job opportunities. Despite the magnitude of this effort, Chinese poverty alleviation programs have not been closely studied due to political reasons, especially in the United States. 

The author interviewing an embroidery shop owner in Wuding County

The author conducted fieldwork in Wuding County, Yunnan Province. Through interviews with villagers and officials, the fieldwork illustrates the effect of national and local level microloan programs on the ground. The author argues that these government microloan programs are vehicles that materialize the social capital and knowledge capital of loan applicants. As opposed to a simple cash transfer, successful microloan programs establish robust and sustainable links, connecting latent talents of loan applicants to the broader market demand.  

Wuding County in Yunnan Province was removed from the poverty list in May 2020. Man Liping, a researcher at the Honghe University, highlighted that poverty in the area is mainly caused by a large population, a lack of technology and labor, as well as occurrences of untimely diseases and disasters.

Facing more than 800 impoverished counties such as Wuding, the Chinese government strives to satisfy the basic living needs of the rural poor: compulsory education, basic medical services, and housing. To identify the “real poor” and to alleviate poverty, the government constructed a national database in which every poor household is registered. The database tracks the progress of poverty alleviation at a household level so that any necessary adjustment can be made promptly. It identified Guizhou, Hunan, Guangxi, Sichuan, and Yunnan as the most poverty-stricken provinces.

Introduced by the State Council Leading Group Office of Poverty Alleviation and Development, the poverty alleviation microcredit policies have been widely implemented in China in recent years. Launched in 2014, the poverty alleviation microcredit loans refer to loans under 50,000 yuan (about 7,078 U.S. dollars), with no collateral or interest, to support registered poor families. The loans are designed to support income generation, rather than debt repayment, entertainment, and daily consumption. Although applicants need to repay their loans within 3 years, the office can postpone the deadline in extreme cases. 

In Wuding county, the local government has been running the poverty alleviation microcredit policy for the rural population since 2015. According to an officer from the Wuding Office of Poverty Alleviation and Development, the office also helped the applicants to get access to compulsory education, basic medical services, safe drinking water, and housing. To generate more income, the office provided agriculture training workshops, vocational training workshops, and subsidies for applicants. In Huanzhou town, one of the most remote towns in Wuding county, also the homeland of the Yi people, villagers have moved to new houses with solar panels. Yi women started to plant tobacco and make stable income after they acquired loans from the local government and sold the products to state-owned tobacco companies.

A Yi woman standing in front of the new houses in Huanzhou

The poverty alleviation microcredit program allows for a large number of poverty-stricken households to access the benefits of the program, as the data of the Wuding Office of Poverty Alleviation and Development shows: more than 600 million RMB in loans have been lent to applicants in Wuding county since 2015. Meanwhile, according to a government report, a total of 444.35 billion RMB in loans has been given to 10.68 million poor households to generate income nationally in the past 5 years. 

Supporting underrepresented communities such as women of ethnic minorities, programs tailored loans by materializing the unique knowledge capital of loan applicants. Specifically, the Women’s Federation in Wuding seeks to uplift women through offering loan programs for entrepreneurship. The program is designed for women with hopes of starting small businesses — the program covers resource and facility costs, filling the gap of start-up costs. Through this program, more than 100 women have been able to obtain funds annually, providing them with opportunities to actualize their dreams and become entrepreneurial role models. According to Qin Wen, the deputy executive director of the Wuding Women’s Federation, even women who did not obtain the loan were able to benefit from the loan program for entrepreneurship.

Mrs. Guo from Wuding County has been dreaming of opening her Yi embroidery shop since she was young. After receiving the loan for entrepreneurship three years ago, she managed to open her embroidery shop. With the support of the local government, she received an order from China Merchants Bank last September. To help more rural women generate income, she distributed the order to more than 100 embroiderers back in her hometown, Huanzhou. An embroiderer Xianhua said: “I am so happy because I couldn’t imagine that I can make money through embroidery! Embroidery was only for personal use before. I am looking forward to working with Mrs. Guo and earning more income through embroidery.” This program is only successful because it tailors its loans to discover and amplify the social and knowledge capital of the applicants. This shows how the loan program for entrepreneurship creates female role models within communities and encourages all women to work towards financial stability and independence. 

Not all microloan programs are successful. Blanket programs that failed to address the unique local needs had very little impact. The generic loan program for entrepreneurship is designed for people who aim to start businesses. However, in Huanzhou town, only one or two out of 577 households take the loan for entrepreneurship annually. This dismal number is the result of a callously verbatim copy of programs serving the urban population. Firstly,  the application requires a guarantor and credit report. The guarantor must be an employee working in the public sector. In cases where a debtor cannot repay their loan, the amount will be deducted from the financial accounts of the guarantor. Due to the financial pressure, very few employees are willing to become the safety net for those who seek loans. Additionally, the loan can only be used for starting businesses with a business license. While this may suit the needs of loan applicants in urban areas, it does not align with the needs of rural communities: most households within rural communities focus on breeding livestock or growing crops. 

The Chinese government’s unwavering commitment to poverty alleviation left a clear trail behind — the government takes advantage of its deep and expansive bureaucratic structure that reaches individual villages, combines local needs and social capital with the outside market demands, and finally creates a mechanism that nourishes the economic links sustaining the livelihood of the villagers, even after the end of the poverty alleviation campaign. At the core, the success story of microloan programs lies in the resolute high-level policies and flexible local-centric strategies.

Image Source: Ashley Zhang

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Ashley Zhang

Ashley Zhang is currently a senior attending Shanghai American School. From ninth grade, she became aware of different gender issues and how women are often denied important opportunities. She hopes to better understand these issues across different cultures and regions as well as ways to help empower women.

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