Whether China becomes competitive internationally depends on the quality of its human resources. The government's priorities should be to improve the equity, efficiency, and quality of social services, as well as their financing. As China consolidates its rapid economic gains and continues its drive toward a market-oriented environment, the country's international competitiveness will depend greatly on the quality of its human resources. China has made impressive gains in human resource development in the past two decades, and continuing to do so will help reduce poverty in two ways: indirectly, by increasing the productivity and efficiency of its labor force, and directly, by fostering the earning capacity of the poor. Eventually, improving human resources will spur economic growth and enhance welfare. Progress in human resource development has steadily slowed in recent years, however, because of two broad problems. First, the distribution of education services continues to discriminate against the poor, largely because they have not benefited from recent gains in economic growth and are being choked off from access to services. Second, some mechanisms and arrangements for delivering services have created targeting inefficiencies. Hossain argues that the government's priorities should be to improve the equity, efficiency, and quality of social services, as well as their financing. This paper - a product of the Rural and Social Development Division, China and Mongolia Department - is a revised version of chapter 1 of the World Bank report "China: Social Sector Expenditure Review, 1996," China and Mongolia Department, Washington, DC, 1996
