Poverty lines
China is poorer than we thought, but no less successful in the fight against poverty
Revisiting China's poverty using new World Bank data
Authors:
S. Chen; M. Ravallion
Publisher:
World Bank, 2008
When considering which countries have most successfully reduced poverty in the last twenty years, China tends to top the list. But until recently, China’s poverty line was calculated on the basis of Purchasing Power Parity rates dating back to 1993. In 2005, the World Bank’s International Comparison Program (ICP), a global Purchasing Power Parity (PPP) index, updated China’s PPP. The new PPP rate was found to differ considerably from the previous one causing many to start questioning the extent of China’s poverty achievements. A new paper brought out by the World Bank cautions against making rash judgments in this respect. It revisits the new PPP calculations and summarises what they actually reveal about China’s current poverty, and its rate of poverty reduction over time.
China declined to work with the ICP in 1993, which was the last time internationally comparative PPP rates were calculated. Its participation in the 2005 study was only partial in that the government only agreed to implement the ICP price survey, on the basis of which national average prices and the PPP rate are calculated, in eleven cities. According to the report, this means that the prices worked out in the survey are unrepresentative of China’s rural areas where prices are significantly lower for many goods, especially food, which is the most important consumption item for poor people.
Since China’s official poverty line has not been updated in real terms since the mid 1980s, the report proceeds to estimate a 2005 poverty line of $38 per month ($1.25 a day) which is the mean poverty line for the poorest 15 countries in the world, based on a corrected PPP rate for 2005 that takes into account the sampling bias in the 2005 ICP price data. It finds that:
- An estimated 15% of the population are consumption poor in 2005, which amounts to about 130 more million poor people than previously estimated
- The income poverty rate is 10%, implying that there are about 65 million more poor people than previously estimated
- Comparing 2005 with 1981, there are 635 million fewer consumption poor people according to the 2005 poverty line as compared to 566 million fewer poor using the poverty line based on the PPP rates of 1993
Though China is currently poorer than it was thought to be, therefore, its rate of poverty reduction since 1981 appears to have been even more impressive than previously speculated. The report explains this in terms of China’s real growth rates, which are unaffected by the change in the PPP, and which have been the driving force behind China’s poverty reduction so far.
