Absolute poverty in China: Higher, but going down faster than previously estimated

From the Economist:

In December 2007 the World Bank unveiled the results of the biggest exercise in window shopping in history. Scouts in 146 countries scoured stalls, supermarkets and mail-order catalogues, recording the price of more than 1,000 items, from 500-gram packets of durum spaghetti to low-heeled ladies’ shoes.

This vast enterprise enabled the bank to compare the purchasing power of many countries in 2005. It uncovered some statistical surprises. Prices in China, for example, were much higher than earlier estimates had indicated, which meant the Chinese income in 2005 of 18.4 trillion yuan ($2.2 trillion at then-market exchange rates) could buy less than previously thought. At a stroke, the Chinese economy shrank, in real terms, by 40%.

Since then, many scholars have wondered what this economic demotion means for the bank’s global poverty counts. It famously draws the poverty line at “a dollar a day”, or more precisely $1.08 at 1993 purchasing-power parity (PPP). In other words, a person is poor if they consume less than an American spending $1.08 per day in 1993. By this yardstick 969m people suffered from absolute poverty in 2004, a drop of over 270m since 1990. The world owed this progress largely to China, where poverty fell by almost 250m from 1990 to 2004.

…[using a new poverty line of $1.25/day (2005 US$) Shaohua Chen and Martin Ravallion ] find that 204m Chinese people were poor in 2005, about 130m more than previously thought.

That is the bad news. The brighter news is that China’s progress against poverty is no less impressive than previously advertised. By Mr Ravallion’s and Ms Chen’s new standard, the number of poor in China fell by almost 407m from 1990 to 2004, compared with the previous estimate of almost 250m.

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