Preventing Poverty Recurrence in Rural China: Risk Shocks, Household Behavior, and Sustainable Livelihood Strategies

ABSTRACT After China eradicated poverty, measures to prevent it from returning are consolidating their achievements. Using data from China Family Panel Studies (CFPS), the study empirically analyzes the impact of risk shocks on household relative poverty. Heterogeneity analysis and panel threshold regression models are employed to study urban–rural households' risk coping strategies across different levels of income. The study's novelty lies in analyzing risk shocks while considering how households' behavioral preferences influence their economic decisions and overall well‐being. The study determines behavioral preferences with risk aversion indices based on explanatory constructs from CFPS modules on hypothetical investment choices and risk situations. Risk aversion indices provide a more in‐depth comprehension of household decision‐making under uncertainty and prove that different households are responding differently to risk shocks. Findings revealed that higher‐income households use assets for spending; lower‐income rural households cope by reducing savings, which increases their risk of falling back into poverty.