World crisis to increase number of poor in China and India

An estimated 100 million Chinese and more than 250 million Indians remained under the extreme poverty line (earning less than US$ 1 a day) in 2005, according to the latest World Bank poverty estimates.

Roughly 470 million Chinese and 827 million Indians earned less than US$ 2 a day, the median poverty line for all developing countries.

Some economists say World Bank figures understate the true extent of poverty. In India for example more than 40 per cent of children under five are underweight.

Although growth will continue in these countries a major slowdown could worsen the existing high levels of inequality with a small elite benefiting the most.

Today at the Doha (Qatar) meeting, which is aimed at advancing UN goals on reducing extreme poverty, observers noted that a the large-scale fiscal stimulus coordinated among major economies might stave off the worst of the crisis domestically but it will not prevent a significant slowdown of the global economy. Experts say gains from growth in India and China should be better channelled into areas that most uplift the rural poor, such as spending on health, education, and infrastructure.

Beijing announced a 4 trillion yuan (US$ 586 billion) stimulus package for the purchase of goods and services but did not make it clear how it would work. Many observers are concerned that the money might simply end up in large scale infrastructural development and consumption.

At the same time China is expanding subsidies for farmers’ purchases of home appliances and mobile phones to cover 920 billion yuan (US$ 134 billion) of sales over four years, the Ministry of Finance announced today.

Farmers in 14 provinces can buy selected TVs, refrigerators, washing machines and mobile phones at a 13 per cent discount from today.

In the meantime China’s yuan fell by the most in seven weeks after the People’s Bank of China set its daily reference rate today at the weakest level since August, something “totally unexpected” according to experts.

This comes three days before US Treasury Secretary Henry Paulson visits Beijing for trade talks.

Previously the United States had pressured China to quickly appreciate its currency.

Similarly the Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October after output and new orders all contracted by the most. For this reason the government wants to increase domestic consumption.

It “shows that the Chinese economy is slowing down at an accelerating rate,” said economist Zhang Liqun. However, the government’s steps to counter the slowdown will take months to have an impact on the economy, he added.