China’s migrant problem: the need for hukou reform

Author: Sherry Tao Kong, ANU

In December 2009 China’s Central Economic Work Conference announced policy initiatives of hukou (household registration) reform and the absorption of migrant workers into small-medium cities. Although the renewed national strategy can certainly be seen as a welcome sign to address this fundamental issue, the majority of migrants are clustered in metropolises such as Beijing, Shanghai and Guangzhou. The local governments in these cities will need to devise their own coping strategies to deal with the pressure and tension over limited infrastructure and resources.

Beginning last year, Shanghai and a number of other cities have started a ‘point system’ to grant ‘well-qualified’ migrant workers permanent residency. But to many migrants’ disappointment, the eligibility requirements are so stringent that less than 0.1 per cent of migrants would be qualified to apply. This is not surprising. With local government financing social security, social welfare and social relief, it is unfeasible for city governments to provide all migrant workers with social benefits and public services in the same way as their urban counterparts within a short time frame. Nevertheless, a system that handpicks ‘top’ migrants (those well endowed with financial assets, human capital or both) will only encourage cities to cream off the few ‘best’ ones without addressing the general issues that affect the livelihood of millions.

To make things more complicated, in some areas, land grabbing in the name of hukou reform has also taken place. Farmers are forced to give up their land in exchange for urban residents’ status with no real entitlements to social benefits. Considering the range of difficulties and the degree of complexity associated with hukou reform, there is no simple and quick solution. In the short run, pilot programs in restricted areas could serve as informative policy experiments to explore possible policy options. In the medium and long run, it is still up to the local governments to delineate feasible strategies to manage the urbanisation process and to contribute to the development of a rural-urban integrated social welfare system. It is up to the central government to align the diverse interests in order to address the long-standing institutional issues.

The 50-year old hukou system is a legacy of the dualistic economy, serving as a highly effective measure of limiting migration and keeping farmers tied to the land. While government controls over labour migration have been largely relaxed since 1990s, migrant workers often remain second-class citizens in cities due to their non-local hukou status. Such inferiority manifests itself in forms of discrimination in job markets and deprivation of social benefits and public services. And migrant children often miss out on education opportunities because hukou is inherited,.

Such a system is unfair and has caused much grievance and social tension for many migrant workers, who face great difficulties in their daily lives. The rigidity of the hukou policy, and its implication of entitlement to social benefits and public services, have also suppressed migrant workers’ consumption. With no realistic prospect of settling down, migrants are guest workers. They often spend as little as possible in cities and send the bulk of their income back home. This is clearly at odds with efforts to boost domestic demand in order to address imbalance and keep growth in a more sustainable fashion.

More fundamentally, the current (mis)treatment to migrants hinders labour mobility and adversely affects productivity growth. Sizeable rural surplus labour may be unwilling or unable to move to more productive urban sectors due to various restrictions associated with their hukou status. As the rest of the country moves forward, the divide between the haves and the have-nots is likely to become greater. Meanwhile, impediments to mobility can obscure the real labour supply and send the false signal of depleting rural surplus labour. Consequently, the national economic development strategy may gear up to higher capital and technological intensity. If this happens, many rural poor will be permanently trapped in the low-productivity pockets and fail to catch the train to economic prosperity, forever.

To achieve long-run economic growth and social stability, China needs to address this long-standing hukou problem. But reforming the restrictive hukou system is no easy undertaking. The Hukou system is intertwined with social policy reforms on all fronts: pension, health care, social insurance, education and housing. It will affect not only China’s 140 million migrant workers, but also the rural communities they leave behind. And, of course, the urban population needs to be prepared at the receiving end. That makes everyone involved.