Limitations Of The Hukou System On China’s Socio-Economic Development

In defining modern China, rapid economic growth has become an intrinsic component in crafting national identity and has become a top state priority. However, with increasing development, China faces some critical social challenges as urbanization has led to mass migration, a rising middle class, high unemployment rates, and enormous urban stratification. In recent years, the rate of economic growth has slowed, pushing the Chinese government to look towards transforming the domestic economy from an export-led economy to one that is service oriented and driven by domestic consumption. One of the main areas of reform required for this transformation is addressing the household registration system (hukou), as it remains an impediment to increasing urbanization. The hukou system was originally implemented in the 1950s in an attempt to differentiate residential groups as a means of controlling population movement and mobility, in conjunction with state economic development plans. However, such means of social control has created consequences of a large rural-urban divide, socio-economic inequality based on hukou status, and an increasingly discontent rural migrant population from an institutionalized practice of denying migrants basic social welfare in urban cities. In modern-day China, one’s hukou registration determines eligibility for basic necessities, such as food, clothing, shelter, employment, education, marriage, conscription, and other welfare benefits. Despite this, many migrants would risk losing access to benefits in search of better employment in China’s larger cities. This has led to the creation of a “floating population,” which stood over 245 million people in 2016 and is estimated to hit 291 million in 2020. Increasing dissent among this large demographic is a challenge to ensuring the legitimacy of the Communist Party’s single-party rule and authority. This report is divided into four sections: first, I will cover the origins of the hukou system – the history behind its implementation, second, I will address the modern day hukou system and the impact on migrants’ livelihoods, third, I will outline the potential areas of concern the Chinese government have, and will, face in light of increasing dissent and protests among migrant communities, and lastly, evaluate former and current programs the government has implemented to combat this issue.

Origins of the hukou system

The hukou, or household registration, system was a crucial part of the industrialization strategy under the Maoist model. The main concept behind the system was to confine the population within various state-defined segments for easier manageability, that would serve “state interest and priorities in economic growth and in maintaining public security.” This system as a state “tool of social control” still rings true today; the objective of the hukou system is not just for identification purposes or for collecting population data, but more a means of regulating population distribution.

With the influx of rural migrants into the cities, the government looked towards large-scale repatriation of rural migrants to the countryside to restrict the overpopulation of major urban cities as problems of unemployment and hunger became more salient. On July 16th, 1951, the Ministry of Public Security (MPS) published “Regulations Governing the Urban Population” with aims of “maintaining social peace and order, safeguarding the people’s security and protecting their freedom of residence and of movement.” Despite claiming to protect ‘freedom of movement,’ the regulations made mobility more difficult as additional steps in bureaucratic processing were added; all migrants were to report to the local police the details of their change in residency and to apply for a permit. Its significance lies in that it was the first nation-wide mechanism to control and monitor large population shifts. Following this new legislation from 1953 to 1955, the state council and Congress issued multiple directives and regulations that aimed to increase the salience and power of the public security apparatus in preventing rural to urban migration. The nation-wide enforcement of the 1955 “Directive Concerning Establishment of a Permanent System of Household Registration” is the hukou system in essence as we know today. To further enforce the hukou, the government interlaced it with China’s rationing system making it increasingly difficult for illegal migrants to obtain food. As only “non-agricultural households,” or urban hukou holders, were eligible for state grain rations, rural “agricultural” hukou migrant holders could not receive grain tickets and were left with no choice but to repatriate back to the countryside.

Although the hukou addressed state concerns of ‘blind rural migration,’ the system created detrimental side effects of social segregation and inequality, which currently serves as an impediment to development. Often labeled a form of ‘apartheid,’ the hierarchies that exist between non-agricultural (urban) and agricultural (rural) hukous essentially “divided the population into two castes”: the non-agricultural population was granted a superior economic and social status. In the Mao era, because the socio-economic class was relatively homogenous, there was a relatively narrow urban income and wealth difference. However, the income disparities and inequalities between the two hukou groups have been amplified over recent years, as a result of increased mobility and geographical integration of the rural and urban sectors.

Modern Day Hukou System and the Impact on Migrants

China’s economic boom is closely tied to the cheap labor that rural to urban migration has provided. Yet despite a large and important role in China’s economic growth, migrants face multiple discriminatory policies as a result of not holding an urban hukou. Often categorized as part of the urban “underclass,” social discrimination is common for rural migrants as they are viewed as inferior by their urban hukou counterparts. China faces a large and problematic urban stratification; how did the hukou system exacerbate this? As Chan and Zhang explain:

Because the hukou system “links people’s accessibility to state-provided benefits and opportunities,” “a notable dimension of the social and especially economic stratification is still based on hukou classification.” (Chan & Zhang, 1999)

Since the reform era, the introduction of new categories of urban hukou has intensified social stratification. The hierarchy within urban dwellers is distinguished via one’s accessibility to urban benefits and welfare, and the types of “qualifications” met – quality of human capital and quantity of monetary capital; the order from top to bottom exists starting from regular urban hukou residents, to blue-stamp residents, to “temporary residents,” to unregistered peasant migrants at the bottom. This increasing stratification is bound to “arouse greater discontent among the disenfranchised.”

Rural hukou migrants, also knowns as the ‘floating population,’ face numerous challenges living in urban centres. For example, migrant parents are required to pay an extra “voluntary” payment if their children want to attend a city school. But given the high cost of education, receiving quality city education is not an option for many migrant children – more often than not, they end up getting pulled out of school. Generally living in rundown neighbourhoods, the quality of education at local schools differ from that in the city centres, and parents lack the money to hire additional tutors and fund extracurricular activities to supplement the low-quality education available. The system inevitably leaves students to fall behind and remain with little to no prospects of climbing up the social ladder, further perpetuating the poverty cycle. The more likely scenario is one of the tens of millions of children left behind in the countryside by migrant parents to be raised by grandparents or other relatives due to residency restrictions in factory towns and cities.

Without an urban hukou, urban benefits do not apply to migrants and thus housing, healthcare, and welfare are more costly. Although a labor law was passed in 2008 to ensure that even ‘informal employees’ are granted basic welfare by their employers, many factories still fail to provide proper insurance. There is also a gendered aspect to migrant labor: young women remain in service jobs, such as domestic labor or work in sweatshop factories, while men often find work in construction or building trades. Migrants are part of the ‘urban underclass’ due to the type of work they remain in, which are mostly low-end service sector jobs, such as working in restaurants or retail, or work in 3D jobs, such as construction. Although there are inadequate protections of health and safety, job and welfare security in larger cities, many migrants prefer not to work in nearby prefecture-level cities because there are limited earnings potential and job opportunities relative to China’s megacities.

As housing, especially in the city, is extremely costly, apartments built on former farmland are rented out to migrants who are in need of cheap housing. Much of this housing is generally extremely cramped, unsanitary, and in unsafe environments. Local governments blame spikes in criminal activity on migrants and view these “urban villages” as the birthplace of social problems. To alleviate some of these lifestyle challenges, the 2013 initiative of hukou reform allowed rural residents to move to smaller cities, in conjunction with government plans to rapidly urbanize small towns and cities in the countryside. The aim was to make more than 250 million rural residents into urban citizens in less than ten years by relocating them to modern houses in nearby towns and small cities. However, there has been a lag in the parallel development of constructing modern housing and improving employment opportunities. Many migrants facing unemployment and higher city living costs, inevitably find even the subsidized price for everyday costs to be a financial burden.

Potential Areas of Concern for the Chinese Communist Party

Given the extremely disadvantaged and low quality of life millions of migrant workers experience, is there growing dissent from this demographic? If so, how has this unrest manifested? What threats do this population pose for single-party rule in China? This section will furthermore be exploring why it should be a government priority, in the realms of both politics and the economy, to quell this dissent and accommodate to increasing migration flows to China’s urban centres.

The government has witnessed increasingly volatile and violent protests over the past decade, relating to issues of migrant workers and their treatment. Just last year, migrant workers took to the streets of Beijing to protest forced evictions. Following a deadly fire in Daxing on November 18th that killed 19 people, the government launched a ‘safety campaign’ which used the fire as justification to evict people “living in unauthorized dwellings.” Tens and thousands of migrants, unable to afford the costly rent in the city without an urban hukou, were forcibly evicted from their makeshift homes in warehouses and apartment compounds. In an effort to evict residents, the government cut off all power and water supplies in freezing temperatures, stating that all tenants must leave by Dec 15th.

Another instance of inhumane migrant treatment that sparked public outrage was the case of Wang Lianmei, a pregnant migrant who was hawking. In an attempt to move her goods off the street, she was pushed to the ground by police guards. Her story angered many migrants, prompting a huge backlash from the community – rioting, trashing government buildings and police cars. Although there was large public outrage, the powerful security apparatus of the Communist Party and “aura of public authority” quickly suppressed the potential volatility of migrant dissent. However, as the new generation of rural migrants looks towards collective action to address grievances, there are fears within the party that dissent could take on the path of the “Arab Spring” which could challenge China’s single-party rule. China witnessed an estimate of 90,000 “mass incidents of riots, protests, mass petitions, and other acts of unrest in 2009”, a jump from 60,000 in 2006. Outbursts are steadily growing, and the government needs to enact reforms to bridge the social inequality by providing better welfare, rights, and opportunities to migrants regardless of their hukou status. Hu Jintao has “singled out migrant workers as one of the threats to the stability” that is necessary for one-party control and economic growth.

Not only does the government have a political incentive to address the migrant issue, but also an economic one: does the current status quo of migration patterns challenge China’s economic vision? China is currently changing the direction of its economy; it is transforming from an “export-led growth economy driven by cheap labor at a huge environmental cost, to a new consumption-driven, innovation-led, and service sector-centric” economic model. Because the hukou is inextricably linked to financial, housing, fiscal, and land reform, it implies that a reform of the hukou system is necessary if China is to further urbanize and develop. However, this comes with multiple challenges. Chen argues that the role of migrants has been and is an important component in shaping the urban and national economies. Without their provision of cheap labor and basic services, urban residents will see a sharp rise in living costs which will, in effect, affect consumption patterns. China’s urban population went up from 200 million in the pre-reform era (the 1970s) to 700 million in the early 2000s. Hukou shows an urbanization degree of 38%, while overall urbanization degree is 54.77% as of 2015. The 18% difference, represents a floating 250 million people. Thus it can be argued that the hukou system is restricting the urbanization rate in China. At China’s current level of development, the urbanization rate at 54% is comparatively quite slow when compared to South Korea, which had a 70 to 80% urban population at the same developmental stage. However, despite the critical role of migrants in shaping and pushing China’s economy forward, this comes at a huge price. It is estimated that urbanizing rural migrants, so they have welfare, healthcare, and schooling conditions roughly equal to established residents, would cost the government about 80,000 yuan for each migrant” which would be a major financial strain.

CCP Initiatives to Address Migration Challenges

This final section will aim to answer the question, what has the CCP done so far to address the hukou constraints on migration and to improve migrant rights? What aspects should the CCP focus on?

Although the bulk of my analysis will focus on initiatives after 2000, a quick glance at two changes to hukou policy following the reform period reveals the inadequate nature these policies had in addressing the roots of social inequalities migrants faced. In an attempt to address the exponential increase in the number of the floating population since the 1970s, the government introduced a ‘temporary residence certificate’ (TRC) system in 1985 as a means of granting migrant workers legal rights to reside in urban cities. However, the TRC system did not qualify rural hukou holders the right to receive urban benefits thus, still discriminating migrants from welfare benefits that urban residents enjoyed. The second policy the government introduced was the new category of a ‘blue stamp’ urban hukou. Eligibility for the blue stamp hukou was based on how much capital one could contribute – the quality of human capital, or quantity of monetary capital. This hukou was also considered ‘sales of hukou’ because the condition of receiving the blue stamp hukou is a large fee for “urban infrastructural construction.” The category was clearly targeted to those within the elite financial bracket, who would have had no trouble paying costly rent or welfare services on a TRC; the policy neglected the majority of the migrant population.

More modern initiatives of hukou reform include the “National New-Style Urbanization Plan, 2014-2020.” This form of urbanization of “townification” aims to spread urbanization to the peripheries of big cities through granting formal permanent residency to migrants in small cities and towns. The projected scale of urbanization includes the “absorption of 100 million new urban residents and the integration of 140 million current migrants by 2020.” Although the scheme sounds grand, experts argue that the incentive for migrants simple isn’t there; there is still a lack of social services, and most importantly, the level of opportunities is nowhere near comparable with major cities. This results in a ‘schism’ between the government and the people caused by contradictions in needs and wants on both ends. Hu describes this as a form of ignorance; the government ignores the need to improve social welfare in smaller towns and cities, but at the same time is encouraging migrants to relocate there without providing the full incentive first. (Hu, Brookings 2015) When looking at the case of Liaocheng, the town experienced a “building frenzy” and has established an urban landscape with tall apartment buildings. The landless farmers on which these buildings were built were given free flats and “tens of thousands of dollars for their land” but are worried about what to do when all the money is used up. Although the physical landscape of rural areas seems more integrated into the urban scenery, psychological and cultural integration of rural residents are still insufficient, which will be an impediment to establishing the ‘urban consumer culture’ necessary for China’s economic growth.

Another downside to this policy initiative is the challenge of funding. Financing the costs of setting up necessary services and infrastructure for urbanization plans by 2030 is estimated to be around 40 to 60 trillion RMB. A potential solution to this could be for the government to pursue a more market-driven urbanization process. The Brookings Institute recommended China that it needs to improve the macro environment to allow the natural reallocation of jobs and labor based on a market-driven economy. But the real question lies in whether China’s political system of governance will allow room for the adoption of a strong liberal democratic view of economics.

Another challenge the CCP must address is what to do with the 60 million children left in the countryside. These children are often left behind in rural villages as their parents migrate inward in search of better employment opportunities that enable them to send larger remittances back home. Currently, China is facing a declining population as a result of the consequences of the stringent one-child policy. To fill that population gap, China will inevitably have to continue rural to urban migration as a solution. But China’s economy, as noted before is shifting from an export-based mass production economy to a service economy, and thus as it moves up the value chain it will require an increasingly skilled and college-educated workforce. To combat this macroeconomic constraint, one solution would be to increase access to high-quality city education for rural children. The current hukou system and the family-hostile work environments in factories and cities exacerbate the challenges of addressing the challenge of a large uneducated demographic in China’s current economic trajectory.

Last but not least, the most recent ‘point-based hukou system’ launched in Beijing is not an effective solution to combating challenges faced by the floating population. In April, Beijing launched a new “point-based household registration system” that would enable non-Beijingers to apply for registration as permanent urban residents over an application period of 2 months. Although those selected would receive an urban Beijing hukou guaranteeing eligibility for social benefits and welfare in the city, the requirements for accumulating points neglect the majority of the migrant population. To be eligible to accumulate points for the hukou, requirements include having held a Beijing temporary residence permit for seven consecutive years with the city’s social insurance records, and no criminal record. But other than the basic eligibility to gain points, the new policy is favourably biased towards those with good employment, strong educational background, “achievements in innovation,” and stable homes in Beijing. In essence, very much like the blue stamp hukou, this initiative neglects the majority of the rural migrant population as potential applicants.

In conclusion, the hukou system creates a myriad of social, political, and economic challenges for China. Rising social inequality from the rural-urban divide as a result of hukou policies, in conjunction with increasing economic hardship, is bound to generate more dissent among not only the rural migrant population, but also other groups part of the ‘urban underclass’ category. This may be the biggest domestic challenge to the Communist Party’s single-party rule, as increasing protests may threaten the legitimacy and authority of the government. But beyond politics, if China is to transform its economic structure from export-led to one that is domestic consumer based in order to maintain a steady and rising economic growth figure, it is crucial that China looks towards hukou reform to aid that transition.

In Hee Kang