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Reform of the Hukou System: a Litmus Test Issue 26 | July 2013 ISSN: 1831-4473 Reform of the hukou system: a litmus test Summary of the new leadership The reform of China's "hukou system" seems to be gathering momentum. The By A. Melander and K. Pelikanova hukou system is a household- registration system, which splits the economic and political necessity. population into urban and rural 1. Introduction residents. It basically gives rural hukou While recognizing the mitigating holders access to land while granting China’s new Premier, Li Keqiang, impact of local reforms since the social entitlements to urban hukou is well-known for being a strong late 1990s, the number of migrant holders. Migrant workers, crucial for the “Chinese miracle” over the past three advocate of urbanization. In the workers in the cities exceeded 260 decades and amounting to one third of early 1990s - then a student at million in 2012, the equivalent of the urban population by now are at risk Peking University and a rising star about one third of total urban of “falling in between”. in the party – he wrote his population (figure 2). Migrants are Since the release of the 12th Five-Year doctoral thesis on the role of often barred from formal sector Plan in 2011, a hukou reform is urbanization in economic deve- employment, social services and mentioned as a possible tool to promote labour mobility, boost incomes, public welfare. With the urbaniza- lopment, with one of the key rebalance the growth model towards issues being the reform of China’s tion rate expected to increase by consumption and create a stable urban 2 household registration system 1 . 1 percentage point every year , society. While there has been a lot of "talk of reforms", concrete proposals Almost two decades later when he the country's urban underclass remain scarce so far (beyond some became China’s Premier, urbaniza- could, in the absence of reform, experiments at the provincial level). tion naturally moved to the fore- reach 500 million by 2030, or In the context of growing urbanization front of the political agenda, and about a half of the urban popula- pressures in China, a hukou reform is so did the expectations for finally tion, which would be socially and increasingly becoming both an 3 putting an end to the formal divide politically explosive . economic and political necessity – and expectations are rife that it will be between urban and rural society included in the new urbanization plan inherited from the Mao’s era. due by the end of this year. 2 The official 2013 urbanization target Recognising how the different systems In the context of a reduced demo- is 53.4%, or a 0.8 pp increase from interact, however, it would appear 2012. However, given that the urbani- graphic dividend and increased crucial to address the highly sensitive zation ratio grew on average by 1.4 pp issues of land-use rights and the impact urbanization pressure (figure 1), between 2000 and 2012, most ana- on public finances at the same time. the hukou reform is an increasing lysts expect urbanization to continue to Some vested interests will also need to advance at more than 1 pp a year. See be tackled. In view of its complexity for instance: Miller, T. (2013) "Faster and heavy fiscal implications, the hukou 1 Li Keqiang (1994) Lùn wǒguó jīngjì or Better Urbanization", DragonWeek, reform appears as a litmus test of the de sān yuán jiégòu (On the Ternary GK Dragonomics, 11 March. new leaders' willingness and capacity to 3 structure of China’s Economy), Peking Miller, T. (2012) China's Urban Mil- undertake reform. University. lion, Zed Books ECFIN economic briefs are occasional working A. Melander is seconded from DG ECFIN to head the economic and finan- papers by the European Commission’s Directorate- cial section at the EU Delegation to China, while K.Pelikanova works under General for Economic and Financial Affairs A. Melander as an intern. The authors are grateful to Moreno Bertoldi, © European Union, 2013 which provide background to policy discussions. Markus Ederer, Thibault Heuzé, Laurent Javaudin, Charlie Parton, Rupert Reproduction is authorised They can be downloaded from: Willis and Yi Xiaolin for useful comments on a final draft of this note. The provided the source is acknowledged. ec.europa.eu/economy_finance/publications note has also benefitted from discussions that the authors had in Beijing and Hangzhou with 'China experts' in May and JuneText 2013 . T Text ECFIN Economic Brief Issue 26 | July 2013 However, there are also significant economic system and public interests”4. In addition to the challenges associated with the reform process. In goals of social and political stability, most experts this sense, the reform of the hukou system is a test point at the economic rationale behind such a for the new leadership's reform-credentials and their control system: restricting rural-urban migration capacity to navigate the complexity of this issue. was necessary to push the heavy-industry-oriented development strategy under the condition of dual Figure 1: Urbanization in China is accelerating economy. At the time of Mao’s rule, China was a largely agrarian country. The state maintained arti- China's urban and rural breakdown (1949-2012) ficially low prices for agricultural products while overpricing industrial products in order to ensure sufficient financing flows to the secondary sector. The stringent migration controls served to maintain this economic configuration5. Box 1: What is hukou? Hukou is a synonym of official registration in Chi- na. Originally, the hukou system divided the popu- lation into four types depending on (i) occupa- tional aspects (agricultural/non-agricultural) and (ii) locational aspects (living in urban areas/rural areas), largely according to the place of birth and the hukou status of the parents. The rural hukou Source: CLSA, CEIC status entitled the holder to access to land (name- ly the right to use construction land, farmland and Figure 2: The share of urbanites without full rights is contracted forestland), while the urban hukou on the rise status provided for a variety of social benefits (including pensions, medical care, education and China's urban population by registration status other public services). The match was not exact, but the majority of population living in rural areas had an agricultural hukou. The distinction between agricultural and non- agricultural hukou became obsolete in the 1990s with the end of food grain rationing throughout China, but the dichotomy between the access to land for rural hukou holders and social entitlements restricted to urban hukou holders remains the key feature of the system until today. The system was applied stringently until the early 1980s when the “reform and opening-up” policy created pressure for increased labour flexibility. In 1984, the government introduced a system of temporary residence permits that allowed people Source: Gavekal, CEIC with an agricultural hukou to move to urban areas as long as they could provide for their food and 2. The Hukou system: a ghost of lodging. This measure unleashed a massive flow of the Mao era 4 Decree of the President of the PRC, Zhonghua renmin In 1958, the Chinese government formalized a new gongheguo hukou dengji tiaoli (Regulations on Household household registration system modelled after the Registration in the PRC), January 9, 1958, in Chan, K. W. and Zhang, L. (1999)."The hukou system and rural-urban Soviet style internal passport and the traditional migration in China: Processes and changes", Center for hukou used in imperial China. It introduced a strict Studies in Demography and Ecology of the University of division between rural and urban population with Washington, p.3. 5 the official objective of “consolidation of socialist Justin Yifu Lin, Fang Cai and Zhou Li, The China Miracle: Development Strategy and Economic Reform, Hong Kong: Chinese University Press, 1996. ECFIN Economic Brief Issue 26 | July 2013 migrants into the cities, with more than 60 million social entitlements and land rights issues. Since migrants coming to Chinese cities within the first 2011, the government has recognized the need to 10 years of its application. move beyond the sub-national level and started to prepare a national plan for a hukou reform to be In the late 1990s, China experimented with a variety released as a part of the urbanization plan by the of reforms to further ease mobility restrictions. In end of 2013. 1997, the State Council initiated a nationwide relaxation of the conditions for hukou conversion in 3. Hukou system as a drag on eco- small towns and cities, followed by permission to nomic growth transfer the hukou status for family cases (notably spouses and children). The reforms further For many years that followed the “reform and accelerated in the early 2000s with the deepening of opening-up” policy, the hukou system actually schemes such as the ‘blue-stamp’ hukou brought a significant contribution to China’s (comparable to the ‘green card’ in the United States dramatic growth. By shifting its function from a ma- as it can be converted to a permanent hukou after a jor obstacle to mobility to a determining factor of certain period of time) and a general lowering of social entitlements, it allowed for a formation for a thresholds for granting of temporary residence massive supply of cheap labour, underpinning high permits (equivalent to a working visa). productivity in the country’s manufacturing industry over several decades. However, this effect has now The modalities of reform vary greatly across been reversed. This part focuses on its current provinces and municipalities as a result of the impact on labour market (supply side) and on devolution of the responsibility for hukou controls to consumption (demand side), arguing that a reform the local government in the late 1990s.
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