It has become an article of faith among many economists that China’s pro-market reforms of the 1980s and 1990s ushered in a sustained reduction in poverty. This narrative relies on figures from the World Bank, showing that over the past 40 years the number of people in China living in “extreme poverty” (less than US$1.90 per day) fell by almost 800 million. That’s a fair chunk of the world population, which is currently about eight billion.
The World Bank’s calculations suggest China’s rate of extreme poverty has plummeted from one of the highest in the world – 88% – in 1981, to virtually zero today, with the fastest gains in the 1980s and 1990s during the capitalist reforms of Chairman Deng Xiaoping.
It depends how you define purchasing power
The World Bank calculations use purchasing power parity, which is a standard way of comparing general purchasing power over time and between countries. But this approach does not tell us about people’s purchasing power over the specific goods and services that are necessary for survival. Because of this, scholars warn that the World Bank’s method cannot give an accurate picture of real poverty trends.
In a new paper published in New Political Economy we calculate extreme poverty rates for China using data published by the OECD, assessing people’s incomes against the prices of necessary subsistence goods; among them 2,100 calories per day, essential nutrients, three square meters of housing per person, clothing, heating and soap.
In contrast to the World Bank, we find that from 1981 to 1990 – at the end of the socialist period – China’s rate of extreme poverty was one of the lowest in the developing world. It averaged only 5.6%, compared to 51% in India, 36.5% in Indonesia and 29.5% in Brazil.
We find extreme poverty increased dramatically during the market reforms of the 1990s. It reached a peak of 68% as price deregulation pushed up the cost of basic food and housing, cutting the buying power of low-income people.
Extreme poverty then slid during the 2000s, but has yet to fall to the levels calculated by the World Bank…
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