China to “Speed Up” Hukou System Reform

The National Development and Reform Commission announced Tuesday that the government “will speed up” reform of China’s household registration or “hukou” system, following up on pledges by incoming leaders to emphasize urbanization and improve opportunities for rural citizens. From Aaron Back and Liyan Qi of The Wall Street Journal:

The NDRC said the government would focus on improving the quality of urbanization by investing in urban infrastructure such as sewage and heating systems.

It also said that authorities will “perfect the land-management system” as part of the urbanization drive, without elaborating. China’s legislature is considering a proposal to amend the land-management law to reduce the unfair requisition of farmers’ land and give them better compensation for their land rights.

However, even after this reform, rural residents would still have no formal ownership rights to land, and would still have to lease it from local governments. This means they would face difficulty selling their land when they moved to cities, keeping them tied to their home villages and presenting another barrier to urbanization.

China’s massive wealth gap has been driven largely by the hukou system, which classifies citizens as urban and rural and limits where they can live, work, attend school and tap into the country’s social welfare system. As David Pierson of the Los Angeles Times reported last week, the hukou system “has created a modern economic chasm between city dwellers and peasants that threatens China’s economic future as a powerhouse world economy.”

The South China Morning Post’s Tom Holland wrote on Monday that revamping the hukou system is critical to lifting the fortunes of peasants, and would prove Beijing is serious about reform:

They have little job security. They are refused access to public housing. And they are denied pension and health-care benefits. Their children are often turned down by local schools, which means they score poorly in standard educational tests, reducing their later earning power.

As a result, migrants from the countryside not only earn less than their neighbours with urban registrations, they also tend to save a higher proportion of their income as a precaution against future hardships.

Because of the hukou system, about 30 per cent of the mainland’s urban population are underpaid, deprived of social benefits and constrained in their ability to consume.

The economic damage this system inflicts is severe. According to one estimate, if migrants had earned as much and spent as much of their income as regular city-dwellers, consumer spending would have been higher last year by more than 500 billion yuan (HK$629.6 billion). That would have been enough to boost China’s rate of gross domestic product by a whole percentage point.