This paper surveyed 589 farmer families from three different areas in Western China to analyze the influence of the targeted poverty alleviation policy on livelihoods of low-income families. We can conclude that the policy has led to an obvious increase in the total income of low-income families, as well as positive effects on those poor families who rely on agriculture and government subsidies. Yet the policy showed little impact on low-income families that rely on non-farm income. The program has also encouraged farm families to increase their various sources of capital stock. Hence, we suggest that the Chinese government institute policies that provide more balanced growth and support a more sustainable development path for the rural economy and society. This might involve increasing human capital, increasing rural employment, and promoting a more efficient allocation of rural resources.