The limitations of China's hukou reforms

Since 1958, China has been operating a quasi-apartheid system, which is known officially as hukou – the household registration system that divides the population into two classes of citizens. Urban residents enjoy a myriad of benefits, from social welfare to subsidised health care, while rural residents are discriminated against and are not allowed to settle permanently in cities.

The once rigid system of internal control started to fall apart in the 1980s, when rural migrants, who number up to 269 million, flooded into the cities in search of better job opportunities. But they are still regarded as rural residents who can’t even enrol their children at the local state schools where they work. There are 60 million children who have been separated from their parents.

Beijing has vowed to end this system of quasi-apartheid. Chinese president Xi Jinping wrote in his doctoral thesis on agronomy 13 years ago that the government must reform the artificial distinction between the urban and rural household registration systems.

Beijing announced on Wednesday that the government would end the separate system of household registration for urban and rural residents. With the strike of a pen, China’s half-century-old quasi-apartheid system has been consigned to the historic dustbin. 

Well, the abolition has indeed removed the most visible sign of discrimination; urban and rural residents will at last get their household registration in the same colour. Until now, urban resident’s hukou’s have been in red and rural resident hukou’s are in blue. But the devil is in detail.

Though the new policy has officially ended the dual-class registration system, it does not mean the barrier for rural migrants has been removed. In fact, Beijing’s move has only lowered entry barriers for smaller and medium-sized cities. Mega-cities like Beijing, Shanghai and Guangzhou are still fortresses for migrant workers.

For example, rural migrants are only allowed to settle in small cities and towns with half a million people or less. It gets progressively harder for migrants to get urban residential permits as the size of the city gets bigger. For example, if a migrant wants to settle in a big city with more than five million inhabitants, he or she needs to score enough points on a point-based system not dissimilar to Australia’s skilled migration point system.

The vice-minister of public security Huang Ming said at the news conference that mega-cities with more than 10 million people attract about half a million migrants every year and the pressure on public utilities was tremendous. “Therefore, we need to strictly control the population size of mega cities,” he said.

The new policy is designed to lift China’s urbanisation rate, which is a major pillar of the country’s economic development strategy. Though China’s urbanisation rate stood at 53.7 per cent in 2013, only 35.7 per cent of them were officially classified as urban residents. The official goal for Beijing is to get 100 million migrant workers to settle permanently in cities and to boost the urbanisation rate to 60 per cent by the end of this decade.

However, the biggest challenge for this new policy is the country’s under-developed social security system and antiquated fiscal transfer system. Under the new system, cities are allowed to set their own admission standards for migrant workers under an over-arching framework and many are reluctant to take on the additional spending responsibility.

Under China’s 1994 tax-sharing agreement, the central government receives a lion’s share of the country’s tax revenue but at the same time delegates much of the social security spending responsibility to local governments.

A decade after the introduction of the agreement, local government revenue only accounted for 45 per cent of China’s total tax receipts, but it was responsible for 72 per cent of expenditure. For example, the education budget of local governments is 17 times the size of the central government, which has far superior financial firepower.

Local governments must also bear most of the responsibility for social security spending and their budget is seven times larger than Beijing’s. It is understandable why municipal governments are not in a hurry to open their gates to admit rural migrants in a larger number until their fiscal positions have been improved.

Perhaps most interestingly, many migrant workers don’t want to settle in cities permanently due to high costs as well as the fear of losing their farmland back at home. According to official surveys of Sichuan and Henan provinces, two large suppliers of migrant workers in China, 90 per cent of their migrant workers don’t want to live in cities permanently.

Though China has abolished the most glaring discriminatory aspect of its hukou system, it will be a long time before Chinese citizens can move freely from the countryside to the city (China must end its economic apartheid 17 December 2014).