This article is the third part of a series about poverty relief in rural China. Parts one, two, and four can be found here.

Current poverty relief work in China is posing an unexpected problem for low-income households: What do you do if you earn more money through direct government subsidies than you do through work? For many families, the answer is clear: Work just enough to get by, but continue to take what you can from the state.

The Chinese government’s 13th Five-Year Plan clearly defines the state’s goal of wiping out absolute poverty by 2020. To achieve this, local and regional governments have thrown considerable support behind impoverished areas in the form of labor, materials, and financial aid.

The policy has had far-reaching consequences for rural officials. In some regions, multiple government departments are responsible for a single family. Cadres are barred from securing promotions if they fail to meet anti-poverty targets within the required time frame. Furthermore, every cadre must inquire several times per month about the economic situations of the families assigned to them.

The southern part of southwestern China’s Sichuan province is home to the Yi ethnic group. It is one of the poorest regions in the country. Current poverty relief measures focus on improving four key areas: infrastructure, industry, medical care, and housing.

Improving basic infrastructure helps to attract and develop industry in these areas and improve the lives of residents. Industrial support largely consists of interest-free or low-interest credits, largely used to help farmers set up walnut, tea, or bamboo plantations and livestock farms. Medical support mostly targets the many families who have fallen into poverty because of a relative’s illness. Lastly, housing aid focuses on regions dominated by the Yi, who sometimes share housing space with their livestock — an arrangement that leads to health problems. The government provides subsidies to low-income Yi families, enabling them to construct new homes.

All these anti-poverty measures have a common theme: Government officials combine a range of developmental stimuli with direct financial assistance to low-income households when they need to make major purchases, such as homes or furnishings. In other parts of the country, families with the “low-income” label enjoy these benefits free of charge, but as soon as their incomes rise above the poverty line, this aid instantly vanishes. As a result, many prefer to maintain their low-income status and look for ways to carry on enjoying relief policies, even if they are making a decent living.

Poor households have often grown accustomed to life in poverty and reliance on subsidies. Even with industrial support available, they are often unwilling to develop their own businesses or increase their income through supplementary work. In certain Yi regions, where the bulk of aid is given exclusively to low-income households — this situation has caused people to adopt a freeloader’s mindset.

Now, infrastructure projects in Yi areas are nearly complete, and subsidies remain plentiful. To improve the efficiency of anti-poverty campaigns under these conditions, relief work must resolve two main issues: motivating low-income families to raise their incomes through labor, and encouraging households above the poverty line to report their actual incomes. In response to these problems, Wutongqiao District in Sichuan’s Leshan City launched a new approach called the Labor Income Reward Plan in 2014.

The plan is run under the auspices of the Chinese Household Finance Investigation and Research Center (CHFS), based at Chengdu’s Southwestern University of Finance and Economics. Modeled after the American earned income tax credit, the plan is predicated on conditional transfer payments. Instead of handing direct payments to low-income families, it calculates subsidies according to the income they make through labor.

In short, households that don’t work don’t get financial aid. The subsidy gradually increases the further work-based income drops below 400 yuan ($58) per month, but it decreases once monthly income rises above 600 yuan. This system encourages employable family members to accept extra work. At the same time, households with relatively low incomes enjoy higher subsidies, which gives workers an incentive to raise their income through labor.

Participating families have managed to achieve comparatively higher standards of living than before the plan was put in place. This, in turn, reinforces their desire to maintain their higher living standards and helps them shake the habit of trying to stay poor.

The Labor Income Reward Plan has another advantage. Because it does not provide a clear definition of poor families, those with low-to-middle incomes also qualify for welfare payments without fear of losing their status as low-income households. This incentivizes them to report accurate income numbers, and the government avoids having to deal with families fudging their incomes on paper.

Recently, a handful of employable family members were randomly chosen from the low-income families affected by the new reward plan. Studies of their progress led to a number of reassuring discoveries. In one family, for example, the father had one full-time job, but after being placed on the conditional payment scheme, he started working as a driver outside of his normal working hours, giving people rides on his three-wheeler as a means of raising his income and receiving more financial aid.

According to CHFS’s internal figures, employment in Leshan has risen by 13 percent since the new plan was implemented. In addition, employable members of low-income households work on average 38 hours more than before the plan was introduced, while their wages have increased by 203 yuan per month on average.

After its successful implementation in Wutongqiao District, the Labor Income Reward Plan will now be extended to the vast rural areas in the region. Current trials are ongoing in Leshan’s Mabian and Muchuan counties, while pilot programs are being planned for further counties, including Butuo County in Liangshan, a prefecture inhabited purely by Yi people. This will allow the plan to garner more feedback under actual conditions in rural and Yi minority areas.

At the moment, the country’s fixation on relieving poverty among low-income households is making too many families reliant solely on subsidies. This does not break the cycle of poverty but instead reinforces it. The Labor Income Reward Plan, however, destroys the notion of an ill-defined poverty line as a benchmark for family subsidies, allowing rural residents to work their way out of poverty. For the country as a whole, we should consider this a major step toward realizing our 2020 goal.

Editors: Lu Hongyong and Matthew Walsh.

(Header image: A boy of the Yi ethnic group walks in front of a relative in Butuo County, Liangshan Yi Autonomous Prefecture, Sichuan province, Oct. 3, 2012. Liu Xiao/VCG)