Finding a Sensible Poverty Line

By English edition staff
Published: 2008-09-05

Though China has been credited for greatly lowering the percentage of East Asian population living in poverty in a recent World Bank report - from 80% to 18% in a span of 20 years - questions remained over the vast differences between Chinese and international standards in defining poverty.   

According to the World Bank report released in late August,  there were 106.1 million people living below one dollar a day in China in 2005, but calculated to the bank's new standard of 1.25 dollars per day, that number grew to 207.7 million.

This figure contrasted with a China National Statistics Bureau (NSB) 2005 announcement that there were 63.32 million rural poor living below the national poverty line, set at a yearly income below 944 yuan (138 dollars). In 2007 that threshold was increased to 1,067 yuan (156 dollars), but despite that, rural poor in China still decreased to 43.2 million according to the NSB. The new threshold worked out to about 0.43 cents per day.

The official data, however, did not had a category for urban poor, but recipients of basic-living guaranteed subsidies might serve as a reference point. The NSB data revealed that in 2005, there 22.33 million urban residents received such subsidies; and in 2007, the number increased to 22.71 million. The value of  the subsidy differred between various recipient categories and from place to place, for instance in developed cities like Beijing, the subsidies reached up to 330 yuan per month in 2007, and in the less developed regions in Sichuan, the average was 162 yuan per month from August 2007.

Factors Behind the Gap
David Dollar, chief of World Bank China and Mongolia, noted in a blog post on August 26 that the poverty rate in China for 2007 was likely to be 4% (about 53 million people). This figure was about 20% higher than China's official estimation and nearly four times lower than the Bank's. The Chinese benchmark was 0.43 cents, about 35% of the Bank's bar at 1.25 dollars.

Dollar explained the striking gap was due to China's official poverty line formula, which only considers whether or not a yearly salary could cover the cost for a 2,100 calorie daily diet. The Bank's standard, on the other hand, assumed spending on shelter, clothing, and other basic needs alongside costs for food.

Dollar told the EO via email that the World Bank had been working closely with Chinese officials who were examining a Chinese new poverty line, adding that he thought roughly doubling it from 637 yuan in 2003 prices to about 1,300 yuan in income per person per year was sensible.

With urban prices in China about 30% higher on average than rural ones, Dollar suggested if the rural poverty line were set to 1,300 yuan, then the same real urban line should be 1,690 yuan.

The EO had reported in April that Chinese policymakers were considering yearly income below 1,300 yuan (190 dollars) as a potential new national poverty line, which sources said could be presented to the State Council for deliberation in October. However, officials from the Poverty Alleviation Office had kept mum on the plan's latest development when contacted by the EO recently.

A source familiar with the issue suggested that the silence could be attributed to backlashes from earlier reports that a new poverty line would double the population living in poverty to about 80 million from the current 40 million.  

Leaving Poverty Behind
The World Bank report revealed that 1.4 billion people in the developing world - one in four - were living on less than 1.25 dollars a day in 2005, down from 1.9 billion (one in two) in 1981.

The report said poverty in East Asia—the world's poorest region in 1981—has fallen from nearly 80% of the population living on less than $1.25 a day in 1981 to 18% in 2005 (about 330 million), largely owing to dramatic progress in poverty reduction in China, which saw 600 million fewer people living under that bar in 2005 than in 1980.

The China factor had led the East Asia region to achieve the Millennium Development Goal (MDG) in poverty reduction 13 years ahead of the targeted date of 2015; the goal was to halve the poverty population living under one dollar in 1990 by 2015.

China alone attained the goal 15 years ahead of target. The report noted that China's progress in poverty reduction was uneven overtime, with setbacks in some periods, such as the late 1980s, and more rapid progress in others, like the early 1980s and mid 1990s. It cited government policies and economic reforms as key drivers of such progress.

The report also highlighted concern over a widening income-gap between various social groups and geographic locations.

However, poverty reduction elsewhere in the developing world were not as electrifying. The number of those living in sub-Saharan Africa for under 1.25 dollars a day has increased from 202 million in 1980 to 384 million in 2005.

Dramatic increases in fuel and food prices over the past two years were not reflected in the findings, the report's authors said, adding that some assessments suggest "at least a few years of the progress" were "eroded" by them. It might be another two years before their impact is fully known, they noted.

Note: The standard of 1.25 dollars was the average of the national poverty lines for the world's poorest 15 countries in terms of consumption per capita in 2005, namely: Malawi, Mali, Ethiopia, Sierra Leone, Niger, Uganda, Gambia, Rwanda, Guinea-Bissau, Tanzania, Tajikistan, Mozambique, Chad, Nepal and Ghana, because their median poverty line is very similar, at 1.27 per day and the consumption per capita for this group ranges from 1.03 dollars to 1.87 dollars per day with a mean of 1.40.