This rapid income growth of the poorest in rural coastal provinces could be attributed to the prosperity of Township and Village Enterprises (TVEs) and other non-farm activities because of proximity to economic centers – _Shanghai_ for _Jiangsu_ , _Bohai_ Economic Zone for _Shandong_ and _Liaoning_ . Internal migration and remittance also play a role. On the other hand, the relatively smaller gains among the bottom end of the urban distribution could be attributed to the widespread retrenchment of SOE workers. Before the enterprise reforms in the 1990s, a large part of urban workers were employed by SOEs or collectively owned enterprises. The enterprise reforms gave enterprises flexibility in hiring/firing workers and in determining workers’ pay, and encouraged financially unviable enterprises to merge or shut down. Workers with higher ability or skills could more easily find gainful employment outside of the public enterprises. However, a large number of urban workers, laid-off from SOEs and collective-owned enterprises, were unskilled. Furthermore, the imperfect tax system has not been effective in taxing and redistributing.

Based on the one-dollar-a-day poverty line (Purchase Power Parity, 1993 international prices), China’s poverty rate had nearly halved to 33% in 1990, from 64% in 1980. By 2004, it stood at 10%. The absolute number of poor consuming less than a dollar-a-day fell from 634 million in 1981 to 134 million in 2004. We employ 1.5 dollars-a-day as income poverty line for the period of 1989-2004. Adjusted by rural and urban CPI at the provincial level, we translate 1.5 dollars-aday into 768 _yuans_ 1988 Liaoning urban price per capita per year.

Subject to the 1.5 dollars-a-day poverty line, for all eight provinces, rural poverty headcount more than halved from 50.1% in 1989 to 22.4% in 2004; urban poverty headcount fell by a-third from 19.0% in 1989 to 13.5% in 2004 (Table 2).<sup>7</sup> The initial poverty headcount in 1989 was lower in coastal provinces than in inland provinces, as a result of earlier concerted effort to concentrate resources to develop the former. Because of their proximity to urban centers of high economic growth, coastal rural areas had witnessed stellar poverty reduction – poverty headcount from 40.2% in 1989 to 13.5% in 2004. Among urban coastal areas, poverty headcount also more than halved from 14.2% to 5.9%. Similarly, inland rural areas also witnessed halving of poverty incidence during this period. Poverty reduction is slowest in inland urban areas, decreasing from 21.8% in 1989 to 18.1% in 2004.

**Table 2 - Poverty headcount by regions (%)**

||Allthe p|rovinces|Coastalpr|ovinces|Interiorp|rovinces|
|---|---|---|---|---|---|---|
||1989|2004|1989|2004|1989|2004|
|Rural|50.1|22.4|40.2|13.5|55.8|27.4|
|Urban|19.0|13.5|14.2|5.9|21.8|18.1|

Note: 1.5 dollars-a-day (Purchase Power Parity, 1993 international price) translates into 768 _yuans_ 1988 Liaoning urban price.

> 7 Rural poverty rate can be overestimated relative to urban poverty rate based on single poverty line as the difference in cost-of-living between rural areas and urban areas has not been taken into account (Ravallion and Chen, 2007). The trends of poverty reduction for the entire sample and for coastal and inland provinces stay unchanged when we adjust rural income taking income cost-of-living difference. Results are available upon request.

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