Aid and the Chinese economy - The Qinghai community development project Case Study Click on the following links for further information about this case study: Teacher's Notes Student Activities Introduction Throughout the past twenty years, as a consequence of a gradual shift towards a more open, market economy, China has sustained a remarkable average annual growth rate of just under 10%. The acceptance of market forces and the opening up of the country to foreign trade and investment has propelled China into the ranks of the top ten exporters in the world. This has dramatically improved the standard of living for many Chinese people. International trade has proved to be the engine of economic growth for a nation that was one of the poorest in the world fifty years ago. However, much of this economic boom has been centred on the coastal towns and cities. Foreign investment has largely been attracted to large urban areas such as Shanghai, Guangdong, the Red River delta near Hong Kong and the Fujien province. Poverty continues to be wide-spread in rural China where two thirds of the population live. World Bank estimates suggest that around 13.5% Chinese are still living below the poverty line. The income gap between rural China and the coastal regions is increasing and this growing imbalance is causing concern to the Chinese Government.   In rural China, limited access to infrastructure often means walking long distances to obtain water. China has become an increasingly important trading partner to Australia in recent years and it is in Australia's interests to see China continue to grow and prosper. The successful Qinghai Project has demonstrated that rural poverty can be reduced and that even the most isolated regions can be drawn into China's booming economy, and thereby, the global economy. The Quinghai province In 1992 delegates from the Australian Government's overseas aid program visited the Qinghai Province, one of China's poorest regions, to identify suitable aid projects. The climate is harsh with the area prone to natural disasters such as droughts and frequent hailstorms. Land suitable for agriculture is limited in both quality and quantity. Literacy levels are low and the health of the population is relatively poor. The mission team found that much of the population was trapped in poverty - characterised by subsistence farming, little or no cash income (with barter as a common means of exchange), no access to credit, and a reluctance to experiment with new farming methods and crops. Infrastructure was very limited and the population was isolated from markets and the more prosperous regions of China. After examining a range of proposals, it was decided that the aid project would focus on the three counties of Leda, Pingau and Huangzhong, located on the boundary of the Tibet-Qinghai Plateau, one of the most disadvantaged parts of the province. Creating a cash economy Two major aims were to improve the region's infrastructure and create a cash economy. Road construction started in the middle of 1995 and eighteen months later some 71 kilometres of access roads had been completed. The 4,400 households who participated in the road building activities received an average income of 463 Renminbi (RMB)($AUD 96). Australia provided the wages and China the equipment, materials and building expertise. Drinking water was provided to 38 poor villages with some 5000 households benefiting. Over 12000 people were employed on the water project, earning an average income of RMB211 ($AUD 43). Apart from creating a cash economy, many other benefits were to flow from this improvement in infrastructure. New roads meant that the region's farmers now enjoyed quicker and easier transport to markets. The result was better market information and higher prices for their produce. Imports to the isolated area became cheaper as traders visited more often. Coal and medicine were two products that fell in price. Families gained better access to school and medical services. The improved bus service, a consequence of the new road, made the villagers more mobile increasing their employment opportunities and exposing them to new ideas and new experiences. The transition from a subsistence economy to a dynamic market one had begun.   New roads have meant families have gained better access to schools. Improving infrastructure included increasing access to water. Carrying water long distances is time-consuming, and affects the health of women who are the traditional water carriers. Consequently, with greater access to water, women suffer from fewer health problems as they don't have to carry water over long distances. Less time spent fetching water also means more time is available for other (income-generating) activities, such as raising pigs and chickens. Water for garden plots also means more vegetables can be grown, increasing variety in household diet and improving villagers' health. Micro-credit One of the most innovative aspects of the Qinghai Project was the introduction of a micro-credit program. Lack of access to credit had been identified at the pre-feasibility stage of the project as a major constraint on the improvement of household incomes and living standards. The scheme was a logical progression from creating a cash economy amongst a population with few opportunities to save. Micro-credit was a fairly new idea in China and a month long study tour was organised to Bangladesh, Vietnam and the Philippines so that local officials could explore similar projects at work. The aid project team was keen to establish savings groups (consisting of 4 - 7 members) in the poorest villages thus enabling the targeted households to lift their income and living standards through new income-generating activities such as buying animals such as pigs and sheep, or trying new crops. The project team was also keen to make micro-credit accessible to women and minority groups. The original idea was that borrowing would be linked to a person's capacity to save for six months prior to receiving a loan. However, this restriction was quickly recognised as being unrealistic considering the poverty of the region and its cashless economy; households had little experience of saving money. By early 1998 over 11,000 households had joined savings and credit groups with an average loan size of RMB493 ($AUD 101). The application procedures were kept simple and the loans were non-directive. The only conditions were that people should borrow in groups and repay the loans plus interest. The majority of borrowers are now on to their second or third loans and each time a group repays a loan they become eligible for a larger loan next time they wish to borrow. Training the trainers Another important goal of the aid project was to ensure that better government services were provided in the region. Introducing new concepts and management practices was to be an exciting challenge for the project team. This part of the aid project started with funding to build three multi-purpose community halls - one in each township. Being able to bring people together under one roof for consultation and discussion is taken for granted in developed countries and, of course, is not always necessary given the wide range and sophistication of other methods of communication. A training the trainers approach was adopted and focused on two broad areas - agriculture extension and economic /credit activities. The trainers learnt a whole range of new techniques such as trend and change analysis, mapping, matrix scoring and wealth ranking. The economic and credit trainers also gained skills in basic economic analysis and constructing budgets. Improving communication and consultation skills was an important feature of the training program. A range of training manuals and flip charts were designed to reflect local conditions (such as housing and clothing) to be used in the village halls. Presenters were given advice on how to engage an audience, prompt discussion and generate new ideas. Farmers responded well to the teaching sessions and became more responsive to the idea of trying out new crops and farming techniques. Participation in farming experiments was purely voluntary and occurred on the farmers' own land. Australian canola seed proved to be a popular new crop with potential to raise farmers' incomes. Evaluation There is no doubt that the Qinghai Community Development project has been successful and clearly demonstrating that it is possible to draw even the most isolated and poverty stricken areas of the world into the global economy with a relatively modest injection of funds. Ready access to new information, new ideas and new thinking, as well as the ability to improve the mobility of economic resources are essential for success in the global economy. This aid project helped break down some of the barriers restricting the region's development.   Top © Commonwealth of Australia