Giving immigrant workers urban identities: what can be done?

Lu Ming, Professor at Shanghai Jiaotong University, drums up hukou reforms for fairer access to urban benefits.

Household registration system, more commonly known as hukou 户口, has origins dating back thousands of years, but the current system did not come into being until the 1950s. The policy goal of hukou is to identify a person as a permanent resident of an area by recording information such as name, place of origin, parents, spouse and date of birth. Usually issued per family, Hukou certificates are also family registers, containing the above information of all members of a household. Changing one’s hukou from one place to another is very difficult and subject to different regional regulations.

Hukou, as well as hukou-based social welfare and public services distribution have come under challenges since the epic-scale internal labor migration following reform and opening up. However, the huge number of laborers, mostly from remote rural areas, have long been unable to access urban social benefits, even though many have become long-time urban-dwellers and have had children born in the city. They represent a semi-urbanized/marginalized migrant population. Hukou reform has been in progress for decades, but some think it is far too slow.

The following article is written by Lu Ming, Professor of Antai College of Economics and Management at Shanghai Jiaotong University and Executive Dean of Shanghai Institute for National Economy. The article was originally published on 21st Century Business Herald and can also be found on Prof. Lu’s personal WeChat blog post.

Prof. Lu is an expert in China’s urban-rural development, regional economic development, and labor economics. He sat at Li Qiang, Chinese Premier’s roundtable on Jul. 6. See also Pekinology’s report on the event:

China's Premier just consulted these economists. What's their view on the economy?

Prof. Lu is also author of a popular book on Chinese economy and demographics — Great Nation Needs Bigger City 大国大城, which evaluates urban and regional development policies and advocates for relaxing hukou and promoting domestic market integration. A sequel to the book, Centripetal City 向心城市, has just been published this year.

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Measures to facilitate and support high-quality development, recently released by the Ministry of Public Security of China underlined the goal of improving the quality of public security services. These included several initiatives on household registration or hukou policies, such as refining the system based on place of permanent residence, further relaxing residency requirements and lowering the threshold to obtain permanent urban residency; adjusting policies on obtaining permanent residency in super-large and mega cities; and improving the points-based household registration system.

Reform of the hukou system is clearly gaining momentum.

Hukou is a vital institution influencing China's labor market and internal migration, and it is under reform. Small and medium cities with under 5 million permanent urban residents have now fully lifted hukou restrictions. However, in bigger cities, public services tied to hukou status still treat non-local permanent residents differently. Efforts are ongoing to address this.

The end goal is that after several years of reform, people can move freely, and hukou will become just a registration of where you live, not determinant of your access to public services. The central government has clearly signaled this reform direction.

However, points-based systems are still adopted in large, super-large and mega cities [large cities: population of 1-5 million; super-large cities: 5-10 million; mega cities: more than 10 million]. Despite some regional variations, three key determinants of hukou points are: length of social security contributions, length of residence, and level of education. Some places add criteria like age and criminal conviction data. Outstanding talents may get more favorable policies.

The policy goal of the Ministry of Public Security is to prioritize length of social security contributions and length of residence as the main determinants — that is to say, other criteria like education shall be less relevant and eventually phased out. This will make it easier for older applicants or those less-educated to obtain local hukou.

Another key change is encouraging lifting annual hukou quotas. For years, quotas in the super-large and mega cities have been very limited, shutting out many who meet the points threshold. Removing quotas would greatly boost the integration and public service access of non-local long-term residents who qualify for permanent residency. This is a significant change.

Locally, hukou reforms are moving apace. East China’s Zhejiang province has lifted all restrictions outside metropolitan Hangzhou, the provincial capital; East China’s Jiangsu province did the same outside Nanjing (provincial capital) and Suzhou; Shanghai has significantly increased its points-based hukou quota, expanded the list of universities whose graduates get directly eligible for Shanghai hukou, and lowered thresholds in increasingly populated suburbs. Overall, hukou reform is clearly accelerating across regions.

Hukou reform will stimulate consumption and investment.

Hukou reform can build up China's economic growth both in scale and quality, from the supply as well as demand.

On the supply side, amid an aging population and declining birth rates, hukou reform can partly offset the dwindling demographic dividend. Policies like delayed retirement and increased education help too, but we have long overlooked optimizing human resource allocation between rural and urban areas. With market forces directing resources, labor can migrate from lower to higher productivity regions, bringing higher pay and better job options. Nationally, it allows fuller utilization of human resources.

In the medium-to-long term, allocating public services based on residence, not hukou, as is the current practice, will enable families that have obtained residency to live together. Especially, they will benefit from educating their children locally. This is crucial for resolving left-behind children issues from labor migration. The number of left-behind children and migrant children in China is enormous, so providing equal access to education is a vital tool for developing China's human capital.

My recent research also shows that living experience is critical for human capital accumulation during post-industrialization. China's employment growth is now densely concentrated in the service industry, which is close to attaining 50% of the job market. In other words, the service industry is the likely destination for future stock population and migrant workers. Unlike manufacturing, services involve interacting with people, so accumulating urban living experience is essential. Enabling rural youth and children to migrate to cities earlier strongly aids their accumulation of urban living experience and integration. For migrants, this raises lifetime income and employability, energizing the urban economy.

For outflow regions, hukou reform leads to regional migration from remote, especially rural areas. Continued rural depopulation raises the scale and level of modernization for agriculture, tourism, and resource-intensive industries. Those who stay in the country can enjoy more resources per capita, and thus higher individual and family incomes.

On the demand side, hukou reform boosts growth in two major ways. First, it directly unleashes consumption demand. China has a migrant population of nearly 300 million. However, lack of prospects of permanent urban residency has long suppressed migrant consumption, as they save more in expectation of returning home someday. With the majority of their savings spent on rural house building, enormous resources will likely go to waste due to urbanization-led rural hollowing. Migrants also have low incentive to join urban social security given its portability issues — China has yet to establish a unified national social security system. Their consumption of durable goods is also limited since durables such as household appliances are hard to bring along when moving. My research around then years ago shows that under similar social and economic circumstances, migrants consume 16-20% less than locals. Facilitating permanent urban residency among migrant workers through hukou reform could thus massively stimulate consumption, especially on durables and services.

Second, hukou reform stimulates urban investment. Many cities now suffer from inadequate healthcare, schooling, and unaffordable housing. These inadequacy issues are actually district-specific, commonly found in fast growing areas where public service and infrastructure lag behind surging demand from population inflows. Allocating services by residence instead of hukou will compel investments in education, healthcare and other services to catch up with population growth, generating sustained returns, underpinning growth, while meeting the people's aspirations for a better life.

In summary, by spurring consumption and investment, hukou reform can unlock tremendous economic growth potential, bringing three major benefits: sustained returns that meet people's aspirations for better lives; high-quality urban life and economic development; modernization for a populous country like China.

Accelerating equalization of public services.

Regarding hukou reform, we must first recognize the urgency of the situation. Despite accelerating efforts, I believe it’s never too quick to grant permanent urban residency to migrant population. The current institutional impediments casts tremendous impacts on migrant families and their children, and every step to a better system is a step to better livelihoods and opportunities.

Second, we must focus on increasing school and public housing supply. Inadequate understanding of urban population trends over a long time has led to insufficient public services, especially education in major cities. The priority is raising investment in nine-year compulsory education and kindergartens to match the rising demand. As high school education get more universally available, a large number of new high schools are also needed. Moreover, China’s urban planning allocates fixed purposes for lands which are exceedingly difficult to alter. The amount of land used for education purposes has long been inadequate and requires urgent improvement.

As migrants turn into local residents through hukou reform, public housing will become crucial for lower-income groups. When public housing supply runs low, urban planning should consider assigning low-cost housing areas and avoid large-scale demolition and construction that squeeze out the poor. Much of the current public housing is in far suburban areas, disconnected from service industry jobs that tend to concentrate in urban cores, resulting in a spatial mismatch in supply and demand. Overall, spatial mismatches in education and housing are the two most overlooked issues in the current stage.

Third, we must fully discuss implementation details during phased hukou reform. It is impossible to turn all migrant population into permanent urban residents in one stroke. That brings forth questions like: should interrupted social security contributions count on an accumulative basis? [In most regions in China, continuous contributions to social security is mandated for attaining permanent urban residency. In most cases, contributions to social security are made by employers and can get interrupted due to unemployment or misconduct of employers.] Are migrants renting commercial housing eligible for residence cards? [The Chinese government classifies estates as residential and non-residential/commercial. Rental contracts with commercial apartments, which are excluded from the residential category, often do not qualify for residence cards.] Since permanent urban residency cannot be delivered immediately, ensuring equal access to public services should progress in tandem with hukou reform.

Finally, we mustn’t overlook the power of the market and non-governmental forces. Hukou reform takes time, and private and social sector initiatives can supplement government efforts on education, housing and migrant integration, as seen in the Pearl River Delta region. In Guangzhou and Shenzhen, for instance, market-oriented housing and private schools have greatly supplemented public services. Non-governmental organizations and charity groups have also contributed considerably to migrant integration to the city. These market and NGO forces should be embraced to stimulate market vitality and social innovation.

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