Statistical errors of the World Bank in China: 200 million more poor people

12 January 2008 by Eric Toussaint , Damien Millet


The news was barely noticed by the big non-specialised media: the World Bank admitted in December 2007 that it overestimated the Gross Domestic Product (GDP) of China for a number of years. This is what happened.

With a fixed amount, let’s say 10 dollars, the average consumer cannot naturally buy the same amount of products in New York, La Paz, Kinshasa or Beijing. To eliminate these differences and to compare GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
equivalently, the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

use a conversion that produces the GDP at purchasing power parity (PPP).

The first question to ask is: which prices are considered? Here, opacity reigns. How are the cost of access to education and health factored in? What goods and basic services are taken into account in this conversion?

Nevertheless, the prices (or the cost of living) considered by the World Bank in the case of China, were below the real ones. In December 2007, the World Bank thus recognized that the size of the Chinese economy was in fact 40% less than previous estimates. This is not an insignificant amount. Thus, the GDP of China at PPP for 2005 would be 5.333 billion dollars instead of 8.819 billion with the old estimation. The trend is probably the same for India, the other emerging Asian power.

But is it really a simple mistake? The World Bank is served by an army of well paid experts and is well equipped to detect such a mistake much earlier. And it is not alien to such errors: in many cases already, its estimations have been erroneous, allowing this spearhead of neoliberal globalization to push through its demands. Thus, in the case of China, who does the crime benefit?

Effectively, it profits the World Bank and those who defend the dominant economic model. For this overestimation has repercussions on worldwide growth, which would be only 4.5% instead of the 5% announced. An argument, often put forward, is that with such growth, things are improving in the world, proof that the current system will bring happiness and wealth….

However, this overestimation also has strong ramifications for the discourse on poverty reduction. According to the World Bank, the number of poor people has decreased by 100 million between 1990 and 1999, thanks to the figures coming from China and India (-200 million) while this number has increased on the other continents (+100 million). With the current re-estimation, the number of people living with less than a dollar a day in China will increase by roughly 200 million. If the same procedure is applied to India, we realize that the absolute number of poor people in the world has in fact increased.

If on one hand, questions are being raised about the credibility of the World Bank studies, on the other, the whole rationale of the discourse of poverty reduction and the merits of neoliberal globalization are now collapsing.



Translated by Diren Valayden

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

Other articles in English by Eric Toussaint (498)

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Damien Millet

professeur de mathématiques en classes préparatoires scientifiques à Orléans, porte-parole du CADTM France (Comité pour l’Annulation de la Dette du Tiers Monde), auteur de L’Afrique sans dette (CADTM-Syllepse, 2005), co-auteur avec Frédéric Chauvreau des bandes dessinées Dette odieuse (CADTM-Syllepse, 2006) et Le système Dette (CADTM-Syllepse, 2009), co-auteur avec Eric Toussaint du livre Les tsunamis de la dette (CADTM-Syllepse, 2005), co-auteur avec François Mauger de La Jamaïque dans l’étau du FMI (L’esprit frappeur, 2004).

Other articles in English by Damien Millet (46)

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