Sat, July 13

Challenges and Reforms in China’s Household Registration System

Recently, there has been significant news favourable to the real estate sector, reporting that less than one-third of migrant workers moving to cities are buying homes. This suggests that the Chinese real estate market still has substantial support. According to the latest data from the National Bureau of Statistics, by the end of 2023, the total number of migrant workers nationwide was 297 million. This implies that at least two-thirds, or about 190 million, migrant workers have not yet purchased homes. The implication is quite clear: the foundation of the real estate market includes a massive potential market of 190 million migrant workers. From a high emotional intelligence perspective, the potential in real estate is significant. From a straightforward, low emotional intelligence viewpoint, it’s about encouraging migrant workers to buy into the market. This article discusses the household registration system reflected in this news.

Historical Overview of China’s Household Registration (Hukou) System

The household registration system is a unique, land-based population management system in China with a history that spans thousands of years. Historically, as an agricultural society, land was fundamental to the operation of each dynasty. Farmers cultivated their small plots of land, while feudal dynasties formed alliances and fought over interests, primarily over land. From the perspective of economics, in ancient times, land was the sole factor of production; essentially, whoever controlled the land could become the emperor.

However, in the 21st century, the factors of production in society are no longer limited to land alone; population, technology, and capital are all essential elements. Adhering strictly to old practices would lead to many problems because urbanization necessitates population mobility, which is inevitable. Similar to currency, which has no intrinsic value by itself and only generates value through circulation, considers if you have 500 yuan. If you hide this money away and do not spend it, then the 500 yuan loses its economic value. The same principle applies to the population; it only generates economic benefits when it circulates. From this perspective, the success of the economic reforms and opening up can be attributed to the reforms in the household registration system.

So, the question arises: before the 1980s, China also had a large population, so why didn’t it flourish economically? The answer is that the massive labour force was not mobilized. In the early days of the People’s Republic, due to the emphasis on developing heavy industry, a strict household registration system was implemented to control urban size. With the onset of economic reforms and opening up, a series of attempts began to gradually relax the household registration restrictions. Rural labour began to move not only to non-agricultural sectors in rural areas but also to township enterprises and across provinces. By 1984, the complete restrictions were lifted, allowing labour mobility across regions, and it can be said that this was the realization of the free movement of people.

The Dual Impact of Hukou on Access to Healthcare and Social Benefits

However, it was the free movement of people, not the free movement of household registrations, that was realized. There are many examples of this limitation. For instance, as reported on the front page of the Legal System and Literature Newspaper on July 21, 2010, a case titled “Hukou Obstructs Mother from Donating Liver to Save Son” highlighted an incident where a child could not receive medical treatment due to hukou issues. The parents, who worked in Guangzhou, could not get a liver transplant for their son in a Guangzhou hospital because the child did not have a Guangzhou hukou.

Additionally, there is the perspective of Qiu Fengxian, an associate professor at the Law School of Anhui Normal University, who has long focused on rural sociology and the migrant rural population. In a lecture, he discussed that after migrant workers move to cities, if they fall ill, their first choice is not to visit a hospital but to endure the pain as much as possible. If it becomes unbearable, they might simply buy some plasters to alleviate the symptoms. It’s not that migrant workers do not want to seek medical treatment or go to hospitals; the real issue is that they are afraid to. Upon entering a hospital, they are not primarily afraid of the diagnosis but are worried about the potential costs. According to statistics from Professor Qiu, only 11.9% of migrant workers have visited a major hospital for medical treatment.

In fact, migrant workers do have medical insurance through China’s New Rural Cooperative Medical Care Insurance policy. However, the reimbursement and management of this insurance are localized, meaning they are linked to the household registration system. Localization does not mean that medical expenses incurred outside of one’s registered location cannot be reimbursed at all, but the reimbursement rate is significantly lower compared to that in one’s registered location.

Urban Integration and Economic Challenges Faced by Migrant Workers

A piece published in the December 2022 issue of the “Journal of Agricultural Economics Issues” titled “Invisible Barriers: Urban Integration and the Settlement of Agricultural Hukou Migrant Population,” mentions that due to China’s unique household registration system, benefits such as education, healthcare, and housing are only available to those with local hukou. Consequently, those who reside long-term without local hukou are excluded from these implicit benefits.

Look at Henan, a major labor-exporting province, which annually sends over 10 million people to work in other regions. Many of the skyscrapers in large cities are built by these migrant workers. Yet, their healthcare, due to the household registration system, has never been adequately secured. Additionally, consider the young people who flock to big cities after graduating from university to work. Despite waking up early and working late, dutifully paying taxes from their salaries each month, it must be acknowledged that as taxpayers, the social resources they can access differ significantly from those available to local residents.

This reflects the sentiments of many who work in big cities, questioning why they pay the same taxes yet receive different benefits. This is why many young people in the past preferred to increase their leverage, enduring even high mortgage rates of around 6%, to buy a house. As non-locals without urban hukou, they would otherwise miss out on local benefits such as pensions and education in the big cities. Purchasing property has become one of the best ways to access these resources.

Given the many restrictions imposed by the household registration system, why has it not received more attention? Firstly, due to decades of rapid economic growth, every sector has reaped some benefits, and although the migrant workers who move to cities lack guarantees and endure hard work, the money they earn—despite being hard-earned from exposure to the elements—can sustain their families back in the mountains and even build new homes. Secondly, many cities are gradually lowering the barriers for residency, such as through points-based or education-based registration systems. Cities like Shenzhen and Guangzhou, for example, allow those with a bachelor’s degree to apply for residency.

Recent Reforms and Prospective Changes in the Household Registration System

However, according to Xu Lin, former director of the China Center for Urban and Small Town Reform and Development, the points-based residency policies in some cities have not had the intended positive incentive effect. In his view, as long as a person is employed in a city, their contribution to the local community is the same as that of a local resident, contributing both to the local GDP and tax revenue. Given this, he questions why there should be any difference in treatment between residents with local hukou and those without.

This view is quite fair. Many people think that taxation has little to do with the average person, either assuming it is a matter for businesses that pay taxes on high revenues or for salaried workers who pay income tax each month. However, in reality in China, every purchase involves paying tax again. The seller is merely the taxpayer, but it is the consumer who actually bears the tax burden.

Indeed, looking solely from the perspective of household registration, China has 297 million migrant workers. However, when considering the age distribution of these workers, those over 50 years old constitute nearly 30%. Financial reports and articles with poignant headlines like “China’s First Generation of Migrant Workers Still Laboring” reveal that the first batch of Chinese migrant workers were born in the 1970s and began working outside their hometowns during the 1980s and 1990s. These individuals are now over 50 years old. Despite their age, a significant number of them continue to work without pause.

From a policy perspective, the direction of promoting migrant workers’ migration to cities is already established. In June 2022, it was mentioned that promoting the urbanization of the agricultural migrant population and deepening household registration system reform are top priorities in the new urbanization strategy. Thus, the urbanization of migrant workers is definitely set to proceed. However, a critical issue that remains is how these new urban residents can ensure their incomes are sufficient to afford housing once they move to the city. As previously mentioned, while the migrant worker population is large, those over 50 years of age constitute the largest age group. This must be addressed in conjunction with economic scale, industry links, and other factors. Considering the current emphasis on “new productive forces”, can migrant workers also get a share of this substantial pie?