China:
Rural Migration
and Plugging the Rural-Urban Gap

Stratfor
Analysis
Infosearch:
José Cadenas
Analista
Bureau Chief
USA
Researcg Dept
La Nueva Cuba
April 12, 2007

Summary

As China's leaders struggle with the social effects of
a widening rural-urban gap, the issue of China's
"hukou," or household registration system, has
re-entered the spotlight. At a national public
security conference March 29, officials from the
Ministry of Public Security again called for the
elimination of the two-tiered residence registration
system, citing positive outcomes of several local and
provincial tests of a unified registration during the
past few years. But with many of China's largest
cities worried about the cost of absorbing migrant
laborers, the debate -- which has raged since China's
economic opening and reform in 1970s -- is far from
over.

Analysis

One of the current Chinese government's main economic
and social initiatives aims to build a "harmonious
society." This pleasant-sounding term is the end goal
of a series of economic, social and political programs
geared toward addressing the societal stresses that
have emerged and expanded during China's economic
reform and opening. One of the highest-profile issues
these days is the wealth gap between urban and rural
Chinese. Numerous proposals have been floated and
tested in order to reduce the gap and the social
frictions it sparks.

At a national public security conference March 29,
officials from the Ministry of Public Security
proposed a way to deal with the inequalities across
Chinese society and bridge the urban-rural divide. The
proposed solution consists of eliminating the
two-tiered household registration system, known as
hukou, and allowing freer migration between the cities
and the countryside. Supporters of reform posit that
doing so could alleviate the imbalance of labor
availability and training and reduce tensions between
the coast and interior provinces. This is not the
first time reforms of the hukou system have been
raised, and it is unlikely to be the last. Though the
system restricts China's effective use of its own
potential labor force, it also prevents massive booms
in the populations of cities already crowded and
straining to maintain basic civic services like
transportation, water and sewerage and education.

A 1950s Relic

The hukou system is a remnant of Chinese economic and
social policy from the 1950s. With the implementation
of the first Five-Year Plan (1953-7) and the
subsequent focus on heavy industry, China's
predominately agricultural workforce began moving to
the cities, where the central government was placing
its economic emphasis. China's central leadership at
the time saw mass internal migration and rising city
populations as destabilizing factors undermining the
ability to provide cheap agricultural goods for the
cities. In response, the hukou system was implemented
in 1958, registering individuals and households based
on occupation and place of birth. Effectively, anyone
who was rural in 1958 would remain rural -- as would
all subsequent generations. Urban households remained
urban in perpetuity as well.

Under the centralized economy, the hukou system also
meant that urban registrants received additional
government services, at the time primarily grain
rations, but also education and medical care. Rural
residents were expected to grow their own food, and
thus did not receive urban grain rations. Nor did they
have access to the education, medical or social
security programs afforded the urban residents. But
with Chinese agriculture still following relatively
primitive methods of cultivation, the rural labor
force had plenty of work available on the communal
farms.

With the economic reform and opening of Deng Xiaoping
in 1978, internal migration surged again as the
coastal cities began focusing on light industry for
the export markets, and needed a mass of labor.
Construction booms along the coast also absorbed the
rural labor. But while tolerated, the movement
remained illegal. Backlashes against internal migrant
laborers -- who became the scapegoats for any
employment issues, congestion or crime -- had begun by
the early 1980s. Several cities undertook regular
round-ups of migrant laborers, packing them onto
trains and shipping them back to their native
provinces.

As China began reforming agriculture practices, the
faster pace of population growth in the countryside
only added to the pressures spurring internal
migration. The central government sought ways to deal
with the rising numbers of internal migrants after a
review of the 1982 census showed 1.14 percent of
China's billion-plus population was not living where
they were registered.

Reforming Hukou

In 1983, the State Council passed a regulation
allowing rural residents to work and live in the
so-called market towns (though without changing their
residence status). A year later rural residents gained
the right to work in cities legally, so long as they
had their own source of funds, food and housing, and
registered with the local security bureau. Stemming
from this later reform, some of the larger cities
began offering a "blue" permit to rural-registered
Chinese who could provide capital or necessary
technical skills for the cities' economic development.
Though ostensibly open to anyone, the blue-permit
system was available only to those with considerable
cash -- or to those who could buy one from a corrupt
politician.

As the drive to reform the hukou system increased,
opposition to the changes was strong. The cities did
not want to pay for the social services for the
migrants, but they wanted the migrant labor. A
compromise solution thus emerged. China began issuing
ID cards to citizens, allowing them to leave their
registration books at home. The ID card could be used
to get a job, and those employers who chose to ignore
where the new worker was legally registered could
simply do so. This allowed Beijing to keep an eye on
the country's population and maintain some control
over internal migration, and also allowed the cities
to soak up surplus labor from the countryside and use
it for urban growth. Rural labor moved into the
factories, the construction industry and various
service industries, including restaurants and
small-scale entrepreneurs, food stalls and the like.
But in the end, the government still maintained the
authority to kick out migrants whenever it felt the
need.

In 1988, in order to better understand the nature of
China's population, the state changed the definition
of rural and urban Chinese, basing it on occupation
rather than place of birth and household registration.
But this was used just for statistical purposes, and
the hukou system remained in place. Four years later,
a group of economists at the Institute of Rural
Development of the Chinese Academy of Social Sciences
called in 1992 for the abandonment of the hukou
system, sparking another round of intense internal
debate on the long-standing system. Statistics at the
time showed that just 25 percent of gross national
product in 1992 was from agriculture, but more than 80
percent of the population was registered as
agricultural. The stresses on the system were becoming
obvious.

Fearing Rapid Change

But opponents of reform once again warned of the new
costs to the cities, as well as the potential for a
massive influx of rural residents into the major
cities, taxing urban resources and creating massive
slums on the outskirts of town. The underlying fear of
many, however, was that the large-scale movement would
leave Beijing unable to control the population of the
megacities that would spring up -- and the memory of
the 1989 Tiananmen Square incident was still strong in
the minds of China's leaders. Once again fear of rapid
change prevented any significant alteration, and the
problems lingered.

The new push to eliminate the hukou system was cut
short amid other economic initiatives. In the
mid-1990s, Beijing began reforming the state-owned
enterprises (SOEs), seeking to reduce the redundancies
of enterprises built up over the previous two decades.
The SOEs were unprofitable, becoming a drain on state
coffers and on more solid economic growth. The
dinosaurs of industry also were blocking innovation
and development of China's own intellectual resources,
since there was little or no pressure to be creative
or even competitive. These reforms, implemented in
fits and starts, led to a new wave of urban
unemployment -- and the first group to face blame for
the unemployment were migrant laborers. Already
treated as second-class citizens, social
discrimination against them increased, and city
governments once again began blocking the flow of
migrants and shipping them back to their home
provinces.

Though some hukou reforms started as experiments in
various cities and provinces, Beijing pressed for the
development of rural cities to absorb the
ever-increasing pool of surplus rural labor -- but
with only minimal success. Beijing also sought to
direct migrants to the inland cities, like Chongqing,
that were more accommodating to migrants. Efforts also
were made to urbanize select rural areas, creating
cities by massing the rural population together in an
effort to keep rural forces in the interior rather
than heading to the coast. But none of these fully
addressed the rising numbers of surplus rural labor.
The allure of the cities was too strong. By the turn
of the century, the construction booms in the coastal
cities and the continued rise of exports drew the
rural laborers in. The expansion of service industry
in the cities to satiate the expanding middle class
also created a vacuum the rural laborers could fill.

Footing the Bill

But the influx of laborers also brought new problems
to the city administrators. In order to ease the
growing social unrest triggered by economic
inequalities, Beijing ordered the cities to provide
basic services to migrant laborers, including
education and medical care, though compared to many
benefits enjoyed by nonmigrant urban citizens, these
services were substandard. But the cities did not want
to foot the bill, and the treatment of migrant labor
became one of a growing number of contentious issues
between the wealthy coastal cities and the central
government. This problem continues today, though
Beijing is starting to gain the upper hand in the
struggle for recentralization of control -- as seen in
the sacking of officials in Shanghai.

Nearly every year there is a new call for the
dissolution of the hukou system, and rumors circulate
that the government finally will take the necessary
steps to do so. But the uncertainty of control over
the estimated 100 million to 200 million surplus
migrant laborers, not to mention their families,
continues to weigh heavy in the decision-making
process. The inadequate infrastructure of the cities
also affects the decision. Currently, China's rural
migrants favor coastal cities, where economic growth
has been concentrated. According to a recent report,
of the top-10 choices as destinations for migrant
labor, all but two are on the coast. These cities,
including Beijing, Shanghai and Guangzhou, are
straining to keep social services for their existing
populations.

But pressure to eliminate the hukou system is also
strong. Rural pressures are building up, and Chinese
officials have seen throughout history that revolution
comes not from the cities, but from the countryside.
Further, as Beijing seeks to shape China's economic
development, moving growth centers from the
southeastern coastal cities to the northeast,
including the Bo Hai area, the restrictions on migrant
labor hinder the best use of China's massive manpower
resources. Migrant labor concentrates in the
southeastern cities -- regardless of whether there are
jobs -- since these are seen as places where it is
possible to "get rich quick." Modifying the
restrictions on labor and finding ways to better
manage population flow could allow China to channel
labor to where it is most needed rather than to areas
most popular among the labor pool while still imposing
some of the social controls of the hukou.

Matching Workers to Work

Though China's massive potential workforce offers
great advantages, Beijing has been less than
successful in matching the population to the work --
at least since agriculture was the dominant element of
the economy. In the United States, the internal flow
of labor, the absorption of immigrant labor and highly
efficient flows of information in the labor market
have allowed workers to congregate where the work is.
If one geographical area slackens off in economic
productivity, the labor moves to another area where
growth needs workers. In China, this has not occurred
except in select cases because of restrictions on
movement still in place with the hukou system and the
lack of a national labor information system.

And once again, Beijing is taking a shot at reforming
or removing the household registration system.
Monitoring the population is possible through the
personal ID cards, lessening the need for the hukou
system. However, even with just ID cards, some
elements of the household registrations restrictions
could remain. The rate of increase of rural surplus
labor exceeds that of the rate of surplus urban labor,
and the "official" rural population continues to grow
faster than the urban population, even as agricultural
reforms make agriculture less manpower-intensive and
environmental issues reduce the amount of arable land.
Finally, labor is not flowing necessarily to the
places where Beijing, in its more centralized economic
planning, needs the workers.

The recent Ministry of Public Security conference once
again addressed these issues. And while there was a
general agreement that something had to change, the
hesitancy born of fears that overly hasty change
quickly could lead to chaos remains. The ministry has
been tasked to work on the issue jointly with other
ministries. It will step up its investigations into
potential solutions, funded in part by a $3 million
project sponsored by the International Organization
for Migration, which recently opened a new liaison
office in Beijing. The central government is also
using the All-China Federation of Trade Unions to seek
out and unionize migrant labor in order to get more
control over the migrant population and begin using
the migrant laborers as leverage in dealing with
recalcitrant local and regional coastal governments --
along with foreign companies.

Though the abandonment of the nearly half-century-old
hukou system might not come about this year, Chinese
President Hu Jintao's proclivity to use the rural
population as a base of support makes the changes
increasingly likely before Hu's term expires in 2012.
Both Hu and Premier Wen Jiabao have worked to rebuild
rural grassroots support for the Communist Party --
and their own leadership over the Party and economic
policies. Addressing the hukou system in a very public
manner emphasizes this rural connection to Hu and Wen.
And with nearly 900 million of China's population
still considered rural, the wealth of the remaining
300 million coastal and urban Chinese might not be
enough to overcome Hu's rural backing.

Revolution comes from the masses, and Hu is continuing
to try to harness these masses to ensure that
revolution is guided by himself, not left to its own
devices.