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China: Revising Hukou as a Key to Economic Reform
[Teaser:] The central government is revisiting reform of China’s migrant-worker policy
as a way to increase domestic consumption.
Summary
China’s Guangdong province has proposed a plan to revise the “hukou” -- China’s
permanent residency identification system -- after the weekend’s Central Economic Work
Conference in Beijing emphasized hukou reform as one way to restructure the
economy. Revising the system to allow freer population movement between rural and
urban areas is an important step in promoting urbanization and domestic consumption,
which China must do if it wants to achieve true economic reform.
Analysis
Emerging from the Central Economic Work Conference Dec. 5-6 in Beijing, chaired by
Chinese President Hu Jintao, was the conclusion that modifying China’s “hukou” system
-- which controls the residential movement of people within the country -- is a key to
genuine economic reform. According to China’s Xinhua press, the conferees
recommended revising the hukou system to allow eligible migrant workers to settle and
work in urban areas and easing up on residential restrictions for small and medium-sized
towns and cities to promote urbanization and domestic consumption.
Discussing hukou reform in China is not new, but the topic has taken on a added
importance during the global economic crisis. One of the main goals of China’s stimulus
program is to increase domestic consumption. The government has known for some time
that its domestic consumption -- approximately 40 percent of gross domestic product
(GDP) -- was lagging behind average global rates of 60-70 percent of GDP in wealthy
countries and 50-60 percent in other Asian countries with high savings rates like China.
But the economic crisis and the impact of changing consumption patterns in the United
States has highlighted China’s need to rebalance its economy and increase domestic
consumption to a higher percentage of GDP, thereby dampening its reliance on export
growth.
One important step in rebalancing China’s economy is to increase urbanization and the
higher levels of consumption that go along with it, for such products and services as food,
shelter and transportation. In President Hu’s discussion of hukou reform at the economic
conference, there was a noticeable change from past government statements regarding
hukou. The focus now appears to be on shifting migration patterns to small and mediumsized towns and cities rather than the large coastal metropolises that are the biggest
migrant destinations.
The hukou system, initiated under Mao Zedong in 1958, allowed the central government
to <link nid="29016">control the population by limiting and controlling
migration</link>. The system was designed, in effect, to keep rural peasants tied to the
land. After Deng Xiaoping’s economic reforms in 1978, hukou restrictions were relaxed
and China’s population of migrants, also called the “floating population,” is now believed
to be as high as 200 million. After Deng’s reforms, which opened China’s economy to
foreign trade and investment, particularly along the coast where the trade infrastructure
already existed, migrants began being lured to big coastal cities by the greater job
availability and higher incomes. The result was a widening of the wage gap between rural
and urban workers.
Hukou reform has been discussed and carried out in China since the 1980s, and
throughout this period local governments in large migrant-populated cities have added
their own tweaks to the system. So it is that Guangdong province on China’s southern
coast, one of the country’s most prosperous provinces, has responded to the sentiment
expressed during the Dec. 5-6 economic conference. The provincial government
announced a plan Dec. 8 that rewards points to migrant workers in Guangdong for
education, investment (e.g., buying a house) and length of stay in the province that would
enable them to transfer their current hukou to a city in Guangdong. The plan also would
allow the children of migrant workers to attend schools with their urban neighbors
without having to pay exorbitant fees and would grant migrants workers access to social
security, pensions and healthcare, which are generally not available to those without a
hukou in a Guangdong.
The main problem, of course, is that the people most able to gain points are those who are
educated, ambitious and have money. These are not the demographic characteristics of
your typical Chinese migrant worker, who comes from a poor family, has a high school
education at best and is expected to make a living as soon as possible.
Indeed, Guangdong’s plan is similar to past hukou reforms in that it encourages
permanent migration but only for a select few. Other reforms that have been implemented
dismiss the hukou distinction between agricultural and non-agricultural households but
do not change workers’ residency status -- they remain registered as residents of their
birth places. This effectively limits where than can move and settle without transferring
their hukou. For any new reforms to be effective they must allow migrants to officially
change their residency and they must provide a better balance of social services in rural
and urban areas.
In any case, hukou reform in China, as necessary as it may be, will not be quick or
uniform across the country. Beijing will start slowly and implement the reforms in
piecemeal fashion, focusing on certain areas to ensure that the government can regain
control if the experiment results in any challenge to central authority.