(Yicai Global) Aug. 22 -- China has just two years left to achieve its goal of building a moderately prosperous society nationwide by the end of 2020, and poverty alleviation is not going to get any easier. Policymakers need to reflect on previous efforts to ensure the next wave of relief is effective and does not create inequality.

China's efforts in the past few years have made great progress, and the poor population has reduced by about 10 million annually over the past few years. Just 200,000 people returned to poverty last year and the number is gradually decreasing, but poverty alleviation has also spawned new areas of inequality, such as the 'cliff effect' and the 'welfare trap.'

The cliff effect exists between households below and above the poverty line and villages below and above. It essentially means that the welfare gap is too big and those on the verge of poverty want to be labeled as poor.

When implementing poverty alleviation policies, some local authorities expanded free compulsory education to all members of poor households, and extended basic medical aid to include free medical treatments for all illnesses suffered by any member of the family. This leads those ineligible to feel the policies are unfair, especially those sitting just above the poverty line -- after finding out what they are missing out on, they are trying whatever they can to become eligible for the benefits.

The 'welfare trap' has arisen where poverty alleviation has been improperly used. For example, some siblings shirk responsibilities like looking after their sick or aged family members -- by living separately the ill or elderly may become eligible for more benefits. Some localities even offer welfare to those who just qualify as not poor, which is stretching funds at local governments.

Creating Inequality

The system as it stands is creating inequality, and in the future poverty alleviation work should focus on offering basic security. China is still a developing country and must avoid returning to the thought that all people are equal and deserve equal rights and opportunities, as this leaves no space for a high-welfare society.

This basic security includes ensuring the poor do not need to worry about food, clothing, compulsory education, basic medical care and housing. A lot of research has been done on developing this standard, and experts at the World Bank have taken part in assessments which are in line with China's conditions and capabilities. If the standard is arbitrarily raised, it will make eliminating poverty more difficult and increase the financial burden.

More importantly, poverty alleviation should focus on sustainability rather than being a one-time thing. In previous efforts, the methods used by some authorities were too simple. In order to make progress quickly, they just offered money and goods as aid. In other places, they gave all poor households a minimum living allowance -- this is not helping them out of poverty, it is just increasing their dependence on the government, which creates further inequality.

In future, efforts should be made to consolidate the foundations of poverty alleviation -- especially in extremely poor areas -- to improve their basic work and living conditions, and to increase investment in infrastructure for water, electricity, gas, transport and the internet.

It is also necessary to strengthen institutional supply to cultivate a modern agricultural system for poor areas and develop industries to stabilize poverty alleviation efforts. At the same time, China needs to improve basic public services, plug loopholes in the basic security system, improve education and healthcare in poverty-stricken areas to prevent the formation of the welfare trap.