Introduction China has achieved a large reduction in absolute poverty since about 1980, with the proportionof the population living in poverty falling from 53％ in 1981 to 8％ in 2001 (Ravallion and Chen,2007). But it is also widely acknowledged that many inland rural areas have been lagging in China'soverall success against poverty. Wide geographic disparities in living standards have emerged,notably between the coast and remote resource-deficient inland areas (see, for example, WorldBank, 1992, 1997;Ravallion and Chen, 2007). Partly in response to this problem, thegovernment's anti-poverty policies since the mid--1980s have emphasized poor-area development(Leading Group, 1988; World Bank, 1992, 1997; Jalan and Ravallion, 1998;Park et al. , 2002).Local infrastructure is improved and credit is provided for private (farm and non-farm) investments.
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