Paul French applauds a small change in how poverty is defined in China

Who’s poor and who’s not poor enough to receive state financial support? And at an international level, which countries are too poor to receive aid?

The UK has made some choices. Russia, China, Vietnam, Cambodia, Moldova and Serbia are to see severely reduced aid from the British government following a decision by the international development secretary Andrew Mitchell.

But India will, apparently, continue to receive aid. Naturally this has led to a lot of argument. Does India have more peasants than China? Are they poorer? Is Vietnam now a developed economy?

China and India of course are now enormous, but they’re both hardly what could be described as diamond shaped economies – ie with a few rich, a few poor and most people in the middle. Both countries are at the extremes of the Gini coefficient measuring inequality of a distribution. That is to say, both have wide disparities of wealth.

Yet both countries have nuclear weapons, plenty of millionaires, large foreign exchange earnings and bulging sovereign wealth funds. Both have space programmes and luxury-handbag-loving middle classes. The problem is that judging who’s worthy of aid, who’s poor, who’s developing and who’s developed is a very tricky business.

Let’s take China. Beijing is rather contradictory on poverty. On the one hand the Communist party likes to boast about how many people it has raised out of poverty. These numbers have always been questionable, given that pre-1949 statistics are a bit distorted. Still, there’s no doubt that in the past 30 years most Chinese people have found themselves better off. A truly super-rich class has emerged and a sizeable and growing middle class too.

However, Beijing has traditionally kept its official poverty line significantly below that of the World Bank’s standard definition ($1.25 a day). The World Bank figure, though, is not an absolute, being calculated at purchasing power parity (PPP), and this can make a big difference. For instance, I just had a haircut in central London and it cost me the equivalent of $20. My last haircut in suburban Shanghai a couple of months ago cost me $1.60. Things generally cost less in poorer countries.

$1 a day

But Beijing has just moved the goalposts. Its former definition of poverty – an annual income of $190, just over $0.50 a day and way below the World Bank level – has just been raised to $365. This has plunged an estimated 100 million-plus Chinese people below the poverty line.

You might not like waking up one morning to suddenly find yourself defined as living in poverty. But not that many are complaining, as it means many more families will receive benefits that they weren’t previously entitled to.

And that’s the reason the UK and others don’t need to give China money any more. Previously China liked to keep its poverty line indicator roughly at a third of the Wold Bank’s. Naturally the number of poor appeared lower and the bill for benefits remained slim as so few qualified for them (allowing more money for missiles pointed at Taipei). This was quite important when Beijing wasn’t sitting on $3.2tn of foreign exchange reserves, according to the China Economic Quarterly.

So now China can afford to support a welfare state, of sorts. Given that it has a middle class who largely do not need benefits, it can concentrate its welfare spending on the people at the bottom. Importantly, adjusting the poverty baseline figures closer to internationally accepted norms is also a sign of economic maturity and improved self-confidence in Beijing.

The leadership knows that overall life is improved and the economy is in better shape even if, statistically, 100 million people just dipped below the poverty line. It’s a recognition of problems at the low end of Chinese society – overwhelmingly rural and remote – rather than the decades-long concentration on supporting the country’s winners. In that sense, this brave adjustment should be applauded.

Regular readers of this column will know that I argued that the 2008 Beijing Olympics and the 2010 Shanghai Expo were the worst examples of Beijing government spending. The administration avoided the issues of education, healthcare and welfare in China. It was the elevation of the glitzy but superfluous grandiose over the boring but necessary everyday.

Therefore, it’s only fair that this little-reported but important change that benefits many families be acknowledged here. Let’s hope it sets the direction for the forthcoming new administration in Beijing.

Paul French has been based in China for more than 20 years and is a partner in the research publisher Access Asia-Mintel.