China's problematic social welfare

China boasts the largest social assistance system in the world measured by numbers of beneficiaries. In theory, this guarantees a basic standard of living for all citizens. Yet insensitive income-and-asset testing measures and flawed implementation mean that many eligible people never receive full support , and many of those who do are left stigmatised and isolated.  Alex Smith has this analysis. 

While COVID-19 continues to stifle China’s economy, with unemployment sitting at a record 6.2%,  Western media attention has concentrated on which monetary levers the country’s central bank is likely to pull, what sort of infrastructure stimulus central authorities are likely to favor, and the tactics that local governments are harnessing to encourage factory bosses to keep staff on the books.

Far less attention has been paid to China’s welfare response, a fact that should be surprising given it is those in already economically tenuous positions who stand to be most affected by COVID-19 and its economic ramifications. In addition, 2020 was meant to be the year that leader Xí Jìnpíng  would oversee an end to China's absolute poverty. 

The coronavirus has renewed conversations about the potential merits of universal basic income (UBI) and unconditional cash transfer programs, but China already has a targeted basic income assistance program that aims to provide a “minimum” standard of living to those with low or no income, known colloquially as the dibao.

According to China's state news agency Xinhua,  a recent Politburo meeting chaired by Xi even stressed the need to “improve social security, do a good job administering the dibao, promptly issue temporary subsidies, and guarantee a basic standard of living for the people.”    

Research, however, has found that the dibao scheme has failed to reduce China’s poverty rate by any substantial margin, and in the era of coronavirus, it is in urgent need of reform. 

What is the dibao?

First introduced in Shanghai in 1993, the dībǎo 低保 — short for 最低生活保障  zuìdī shēnghuó bǎozhàng, or “minimum livelihood guarantee” — was created to ensure a basic living standard for urban Shanghainese who lost their jobs in the transition from a planned to a market-based economy. While the dibao was rolled out across the rest of urban China in 1999, it wasn’t until 2007 that rural Chinese citizens were granted access to the program.

Although the dibao is a central government policy, local governments are responsible for carrying it out and for setting the “dibao line” based on how much money is needed to cover basic living costs in their area. Successful applicants then receive the difference between their income, often including informal income from family and friends, and the dibao line. Recipients then have discretion over how they then use the money.

While the dibao is by no means the only thread in the fabric of China’s social safety net, it is considered China’s main social assistance program, as it opens the window to further benefits, and, at least in theory, ensures a basic standard of living for society’s most vulnerable.      

A “limited” impact on poverty reduction

Unfortunately, when it comes to the dibao’s actual impact on poverty alleviation, numerous studies have revealed its performance to be less than stellar.

In her comprehensive study of the dibao, Qin Gao , a professor of social work at Columbia University, found the dibao has had a “limited and at best modest” impact on reducing China’s poverty rate. This is largely the result of “leakage” and “mis-targeting”.

Gao and her team found that in 2007, 42% of eligible urban families were not receiving the dibao, while another study estimated a mere 11% of eligible rural residents were dibao recipients in 2009.       

Perhaps more surprisingly, Gao and her colleagues estimated that 76% of 2007 urban dibao recipients were actually ineligible. A separate study found an incredible 86% of 2009 rural dibao recipients did not actually meet the program requirements.  

Corruption is widely known to play a big part in the system's dysfunction.

While the dibao may have only had a marginal impact on reducing China’s poverty rate, Gao did find that the dibao is more effective when it comes to reducing the “depth and severity” of poverty among its recipients.

China Rice field with farmerRural Chinese only gained access to the dibao scheme in 2007/ photo Wiki Commons 

Most notably, the dibao enabled urban recipients to spend significantly more on healthcare and education than their non-recipient peers. An increase in healthcare expenditure was also observable among rural recipients.

Yet multiple studies have also concluded that many dibao recipients aren’t receiving their full cash entitlements, and that the dibao funding lines set by many localities are often inadequate, as they are significantly lower than the living costs faced by migrant workers and others. 

Despair, humiliation, and isolation

While the dibao is plagued by leakage and errors, it has also been noted that these errors are hardly unique to China. What does set the dibao apart, however, is the brutal intrusiveness of its means-testing measures that leave an overwhelming proportion of recipients with a deep sense of shame and isolation. 

Applicants face a degrading verification process, including a house search, and the interrogation of neighbours and friends to ensure the worker is being truthful. 

Potential recipients’ names are often printed and published on bulletin boards within the community. The wider community can then provide officials with feedback as to how deserving each applicant is.

This process of public filtering and community scrutiny continues until the list is whittled down to those with no objections from fellow residents, who are then finally approved to receive the dibao.

One 2012 study cited by Professor Gao reported an interviewee’s humiliation at having to publicly disclose that she was suffering from a gynecological disease that prevented her from working, while another deliberately hid the family’s dibao status from their child to prevent him from having to carry a “psychological burden.” Consequently, many potential recipients forgo even applying for the dibao in the first place.  

Because of the strict means-testing requirements and the constant monitoring of one’s lifestyle by others in the community, including ongoing inspections every three to six months, dibao recipients are often prevented from investing in supposedly frivolous things, such as cell phones, computers, and education that would bolster their chances of moving into regular paid employment.

Many recipients are further prevented from finding paid work (or from caring for relatives) by requirements that they undertake “voluntary mandatory work”.

These measures effectively consign recipients to a “permanent underclass,” and the fear of snitching neighbors and possibly losing one’s dibao eligibility has meant that many recipients are notably more socially isolated.  

Reform: The need for system overhaul

Broadening the program’s reach through better administration and increased resources, upping benefit amounts across the country, and ensuring applicants receive the full entitlements are perhaps the most obvious first points of reform.

As Professor Gao asserts, few similar cash transfer programs have been known to “adopt a screening procedure that involves as extensive public scrutiny and humiliation” as the dibao. While Gao notes this is partially due to long-standing traditions of community engagement and the general “disregard for individual and family privacy” since 1949, it also reflects China’s lack of systems that effectively monitor income and tax.

Improving information system management to lessen the supposed need for such intrusive screening practices, and taking active steps to destigmatise and change the public conversation around the dibao (and poverty more broadly), will likely reduce the barriers to applying for the dibao and improve recipient well-being.    

But the experiences of dibao recipients also point to the need for wider overhaul of China’s welfare and social benefits systems.

The fact that many dibao recipients prioritize spending on healthcare and education over food and utilities points to the dire shortage of accessible healthcare and education for low-income families.

Gao recommends upping medical and education benefits so that dibao payments can be used for food, clothing, and shelter as intended, while public services should be expanded so that unemployed urbanites and rural residents have the same access to healthcare and social insurance as their employed urban peers. 

The experiences of dibao recipients also offer important lessons about the potential of basic income programs as a tool of poverty alleviation.

Counter to long-standing fears and assumptions, research has found that rural dibao recipients experienced a reduction in their spending on items such as alcohol and cigarettes (similar statistics don’t appear to be available for urban recipients).

As a result, low-income households “deserve more trust and credit for making the best decisions possible” for themselves and families. These findings should also inform policymakers when they set benefit amounts and encourage wider trialing of UBI-type programs in the Chinese context.

 While the precarious financial situations of many local governments and demographic challenges pose significant barriers to a wider system overhaul, in the time of the coronavirus and increased unemployment, such reforms are more pressing and necessary than ever.

As central authorities in China show an increased willingness to tolerate public debt as part of their COVID-19 response, and acknowledge the role that social assistance stands to play in boosting consumption, one has reason to hope authorities will opt to invest additional funding in an improved welfare system that provides people with more than the bare “minimum.”   

This article was originally published on the website Supchina.

 - Asia Media Centre