China Poverty Fact of the Day

From World Bank;

The new PPPs reveal that prices are about 40 percent higher than had been assumed under the old PPP, which was an academic guestimate. Some researchers immediately applied the new PPP conversion factor for GDP to household data and came up with hugely higher estimates of the $1 per day poverty rate for China. However, the World Bank does not use the GDP conversion factor in measuring poverty. The research department of the bank will produce a conversion factor for poverty analysis that takes account of two important things:

(1) the basket actually consumed by the poor is different from the GDP basket; and

(2) the poor almost exclusively live in rural areas where prices are lower.

This work is still underway but the research department has given us a range for their new estimates. Their old estimate of $1 per day poverty rate was 10% in 2004; the new estimate will be in the range of 13-17%. Does this mean that there has been less poverty reduction than had been trumpeted? Actually, just the opposite: there has been more.

The reason for this is that the better price data will also be applied to earlier estimates of poverty (all of which are based on constant Chinese yuan data). The World Bank estimate of $1 per day poverty in China at the beginning of reform will be raised to somewhere in the range of 71-77%. The old estimate was 64%. So, we used to think that 54% of China’s huge population had been lifted out of poverty during economic reform. The improved estimate will be around 59%.