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

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 equivalently, the World Bank 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.