Consumption and Income Poverty in Rural China: 1995–2018

• Published date: 01 July 2021
• Author: Yanfeng Chen,Qingjie Xia,Xiaolin Wang
• Date: 01 July 2021
• DOI: http://doi.org/10.1111/cwe.12383

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 63–88, Vol. 29, No. 4, 2021 63

*Yanfeng Chen, Post-doctoral Researcher, National School of Development, Peking University, China. Email:

chenyanfeng@pku.edu.cn; Qingjie Xia (corresponding author), Professor, School of Economics and Institute

of South–South Cooperation and Development, Peking University, China. Email: qingjie.xia@pku.edu.cn;

Xiaolin Wang, Professor, Institute of Six-sector Industries, Fudan University, China. Email: wangxiaolin@

fudan.edu.cn. This paper was funded by the Major Research Project of National Social Sciences Foundation of

China (Nos. 19ZDA051 and 18ZDA080).

Consumption and Income Poverty in Rural China:

1995–2018

Yanfeng Chen, Qingjie Xia, Xiaolin Wang*

Abstract

This paper studies consumption and income poverty in rural China during the period

from 1995 to 2018 using Chinese Household Income Project (CHIP) data. It fi nds that

the wellbeing of Chinese rural residents has improved signifi cantly during this period as

part of China’s rapid industrialization and economic growth. The incidence of poverty

has fallen substantially, either measured in terms of income or consumption. However,

consumption poverty is not consistent with income poverty. It was the substantial growth

of consumption or income that brought about the sharp fall in poverty, whereas the

redistribution of consumption or income in particular during the period from 2002 to

2018 was unfavorable for poverty reduction. A large number of rural household workers

moved away from household farming to participate in local or urban non-farming

activities, resulting in a fall in poverty in the households that engaged purely in farming,

and economic growth led to a sharp fall in poverty within different rural household

groups.

Key words: consumption poverty, economic growth, income poverty, rural China

JEL codes: D60, I32, R00

I. Introduction

The concept of poverty has been evolving. Rowntree (1901) argued that poverty is

generally defined as consumption or income poverty. In the late 1970s, Sen (1979a)

argued that poverty is largely caused by the deprivation of personal “capabilities”

such as health and education. At the turn of millennium, Alkire and Foster (2007,

2011) proposed a multi-dimensional poverty measurement based on Sen’s “capability”

Yanfeng Chen et al. / 63–88, Vol. 29, No. 4, 2021

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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approach. In its “rooting-out poverty campaign,” implemented since 2014, the Chinese

government has adopted a simplified multidimensional poverty standard, i.e. that the

people should not worry about food and clothing, and should have “three guarantees” –

9 years’ compulsory education for children and youth of school age, basic medical

care, and housing safety. By their definition of income poverty, a total of about 800

million poor people have been lifted out of poverty in China over the last 40 years since

the country’s reform and opening up (Xian et al., 2016; Ryder, 2017). In this paper,

we intend to verify this argument by examining consumption poverty against income

poverty in rural China (because Khan (1998) argued that poverty is largely a rural

phenomenon in China).

Regarding consumption and income poverty, Sen (1979b) pointed out that the

former should be classifi ed as direct and the latter as indirect indicators. Consumption

poverty identifi es those whose actual consumption fails to meet their minimum needs,

while the income method identifies those who do not have the ability to meet these

needs. Consumption, relative to income or wealth, is more accurate in revealing people’s

real economic well-being (Deaton, 1997; Johnson, 2004), reflecting the material

resources that people own more comprehensively and a family’s resources other than

money, such as their level of education, health care, housing, private cars, and social

security (Meyer and Sullivan, 2011, 2012, 2013). Cutler and Katz (1992) argued that

income, which often fl uctuates, is easily affected by temporary shocks and is prone to

measurement errors. By contrast, consumption is not only more stable than income but

can also be measured more easily. Finally, consumption is also a common indicator for

the study of poverty and inequality in developing countries. The World Bank defines

those living on US$1.90 a day, based on purchasing power parity (PPP) for the year

2011, as extremely poor, which is also based on consumption (Ferreira et al., 2016).

Many scholars therefore believe that consumption may be a better way to measure

poverty (e.g. Jorgenson and Slesnick, 1987; Cutler and Katz, 1991; Slesnick, 1993,

1994, 2001; Jorgenson and Dale, 1998).

To investigate the argument that 800 million people have been lifted out of poverty

since the late 1970s in China, we employ the 1995, 2002, 2013, and 2018 four-round

Chinese Household Income Project (CHIP) rural household survey data. Apart from

providing thorough household income information, CHIP data also offered household

consumption expenditure in eight categories as defined by the National Bureau of

Statistics (NBS). Before examining poverty in rural China we explored the changes

in rural households’ income and consumption, and their distribution. The income per

capita and consumption per capita of Chinese rural households rose signifi cantly for the

period from 1995 to 2018, although their corresponding annual growth rates were much