Three Poverties in Urban China

Radical economic reform and rapid marketization in the late 1990s could be expected to create new poverty and insecurity in Chinese cities. Accordingly, the extent and nature of poverty in urban China is examined by means of a 1999 cross‐section household survey. Three types of poverty—“income and consumption”, “income not consumption” and “consumption not income”—are distinguished. A large proportion of the poor have income above, but consumption below, the poverty line. The estimated consumption function shows the importance of consumption smoothing, of precautionary considerations, of saving for investment opportunities, and of special needs related to the presence of children or sickness. An exercise is conducted to compare the three types of poverty by decomposing the divergence in the consumption of each poverty group from its benchmark consumption. Unpredicted financial assets and income, and differences in special needs, are important in contrasting and explaining the three poverties.