Unification of the Urban Minimum Living Standard in China: Using a Consumption Expenditure Percentile Method

Abstract

ABSTRACT. The Minimum Living Standard Guarantee (MLSG) system in urban China was established in the 1990s. As a national income benefit program, this system has huge regional differences as a result of regional variation in economic development and the methods used to calculate the benefit. This article uses a consumption expenditure percentile method to measure and evaluate the benefit level of the MLSG system. The analysis shows that the consumption expenditure replacement rates in central cities are decreasing, but in prefectural-level cities, by contrast, they are increasing. The regional differences in replacement rates when comparing central cities are considerable and are even larger among cities at a prefecture level. Per-capita consumption expenditure is positively correlated with minimal living standards but negatively correlated with the replacement rate. Such variation in the value and operation of the MLSG system suggests an urgent need to implement a national unified scheme. The article proposes a single approach to calculating Minimum Living Standard benefits using a consumption expenditure replacement rate that would allow for local differences while providing national cohesion.

KEYWORDS.:

• Minimum Living Standard
• replacement rate
• calculation method
• consumption expenditure

APPENDIX

The Abbreviation of Prefecture-Level Cities

Notes

1. The MLSG system was introduced in the 1990s. Zuidi Shenghuo Baozhang (Minimum Living Standard Guarantee) means providing minimum living standards for the urban poor. China's strong economic development has meant that the system benefit level improved significantly. Now the goal of the system is to provide basic living standards, but the term Minimum Living Standard Guarantee continues to be used.

2. The SB approach or Rowntree method defines the absolute minimum in terms of a shopping basket of basic needs, such as food, clothing, housing, and heating. The total contents of the shopping basket are added up to become a poverty line.

3. The Engel ratio method defines the basic food needs and then multiplies the basic food expenditure of a low-income family by 3 to determine the poverty line.

4. The IP method defines MLS as a percentage of average income—for example, 50% of average income.

5. The 36 central cities are the capitals of the 31 provinces plus Dalian, Qingdao, Ningbo, Xiamen, and Shenzhen. The central cities are the most developed areas in China.

6. The provincial-level MLS is the mean MLS of all the cities in one province, including the capital city as well as all other urban areas. For example, the MLS of Hebei Province is the mean MLS of the whole county that is administrated by the Hebei provincial government.

7. The detailed explanation is as flows:

Replacement rate = local MLS ÷ local per capita consumption expenditure

The numerator is the local MLS in midsized-to-small cities, which increased faster than in central cities because the food price in midsized-to-small cities increased faster than in central cities—namely, the numerator in midsized-to-small cities increased greatly while the numerator in central cities increased slightly.

The denominator is the local per-capital consumption expenditure in central cities, which increased faster than in midsized-to-small cities because the family income in central cities increased faster than in midsized-to-small cities—namely, the denominator in central cities increased greatly while the denominator in midsized-to-small cities increased slightly.

8. China's administrative divisions are organized at five levels as central, provincial, prefecture, county, and town in a hierarchical order.

9. There are 325 prefecture-level cities left after eliminating some prefecture-level cities with incomplete or inaccurate data. Three hundred twenty-five equals 97.6% of the total number. The MLS at prefecture-level cities is the mean of all cities’ MLS administrated by the prefecture government. For example, the MLS of Shijiazhuang is the mean MLS of all counties (23 counties) administrated by the Shijiazhuang prefecture government.

10. Replacement rate = local MLS (major part of MLS is food expenditure) ÷ local per-capita consumption expenditure (food expenditure plus nonfood expenditure)

In the underdeveloped areas, the food expenditure is larger in the whole consumption expenditure (e.g., the numerator becomes larger); thus, the replacement rate is larger. The developed area is opposite.