For 30 years, China has made great strides in improving people’s livelihoods. In just three decades absolute poverty in China has fallen from 31% to 1.6% - the largest poverty reduction movement in the world. 

China’s strong economic performance has driven this fall, which helped its people improve their livelihoods through income growth. From 1979 to 2012, disposable incomes rose annually by 7.4% or more across China in real terms.

The Chinese government has also expended great effort to enhance its people’s livelihoods. To secure these in both rural and urban settings in recent decades, it has set up social protection systems. This is in addition to its special poverty alleviation programmes. Basic pension systems, health care and guarantees for minimum living standards are now covered for both urban and rural residents, as well.

Despite this progress, for additional livelihood improvements, China faces several challenges.

The first challenge involves maintaining the momentum. As a middle income country, China needs to keep up the economic growth pace to keep improving people’s livelihoods. China’s recent rapid economic growth, which fueled individual income growth and livelihood improvements, was exceptional. 

It is widely accepted that China’s potential growth rates are likely to decline in the coming years. This decline is logical. China’s comparative advantage as a low-cost manufacturing country is falling as its labour costs rise on skill shortages and rising unskilled labour wages. 

As a result, labour intensive industries, which fueled China’s economic growth, will reduce China’s comparative advantage because the productivity of its labour-intensive industry lags labor cost growth. To sustain economic growth, China must transform its growth pattern from one driven by production to one driven by productivity improvement. But this is difficult and uncertain. 

The second challenge comes from an ageing population. China’s strict population growth policy and robust economic development meant that its then-large working age population found employment quite quickly when economic growth accelerated.  But those advantages are petering out as China’s population ages. China is already an ageing society. In 2013 persons aged 64 made up nearly 10% of its population. 

In an ageing society with fewer dependents to support them or pay into pension schemes, China must rethink its livelihoods approach. When a country’s working age citizens make up a very large share of its population, leveraging the labour market and increasing employment as much as possible is a wise strategy to improve livelihoods. Encouraging the development of labour-intensive industries and eroding institutional barriers to labour mobility can also improve livelihoods in this context. But China’s ‘age bulge’ means it will have to look beyond growing employment, to broadening and strengthening its social safety net.

Finally, despite China’s progress in establishing social safety nets, integrating the social protection system into society is a challenge.  For instance, though China’s basic pension programmes and medical care system cover most rural residents, the resources and benefits of these programmes and systems vary widely between rural and urban areas. There is still a long way to go to bridge the gap in benefits between rural and urban areas to improve the livelihoods of rural residents. Gaps also persist for those who live in cities and the countryside in the provision of public services that are essentials to livelihoods improvement, such as access to education and the quality of schooling. These might affect not just one individual’s long-term livelihood, but perhaps those of the next generation, as well.  

It is a crunch time for China to address these challenges, and government leaders know this. At its third Plenum, or government assembly, last year, the government called for comprehensive reforms in many areas including economic and social areas.

The direction is quite clear. To sustain economic growth and generate more resources to improve livelihoods, China must have a more productive economic system. 

WHAT DO YOU THINK? This August, the Rockefeller Foundation, in partnership with the Organization for Economic Cooperation and Development and the Economist Intelligence Unit, will convene thought leaders from corporations, government, universities and civil society.  They will envision new strategies for securing the livelihoods of the world’s poor and vulnerable populations in the face of daunting challenges and remarkable opportunities being unleashed by economic, social, environmental and technological change.

Please post your comments and insights on this topic below to help inform our discussions in August.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.