China, in search of new growth drivers, considers urban residency reforms
- China’s urban migrants, long denied residency and the benefits it would bring, could be source of growth if status changed through reforms
- Property market slowdown, other factors have created need for new avenues of consumption and economic activity
As it searches for new sources of growth to offset shortfalls beget by a shambling property market, China is pondering the consumption potential of rural migrants – a group so large it is more than double Japan’s entire population – though even a maximalist expansion of urban residency may only partly resolve the challenges the country presently faces.
Compared to previous rounds of government intervention that boosted industrial productivity around the new millennium and turbocharged the purchase of urban housing in the 2010s, analysts warned a similar initiative taken now would have comparatively diminished impact, given current predispositions for belt-tightening among local authorities to control runaway debts.
Changing the status of migrant workers would necessarily include alterations to the hukou, China’s system of household registration initially designed to control population flows. That arrangement, a legacy of an earlier era, has been singled out by some as a persistent source of distortion for the country’s economic fundamentals.
If migrant workers can be converted to urban residents, it would help to fill that gap
Cai Fang, a prominent labour economist at the Chinese Academy of Social Sciences and an adviser to the central bank, has argued further reform to the system could unleash more than 2 trillion yuan (US$281.1 billion) in consumption.
Even without an increase of incomes, he said, it would raise migrant workers’ spending power by 30 per cent because of improvements to their social safety net.
“China accounts for 17.8 per cent of the global population, yet contributes only 12.8 per cent of global consumption,” Cai wrote in a December article published on the website of the Chinese Economists 50 Forum, a Beijing-based think tank.
“If migrant workers can be converted to urban residents, it would help to fill that gap.”
Presently, access to government services is restricted outside one’s place of registration, which is generally determined by the legal residence of a person’s parents at the time of birth.
Rural hukou holders, entitled to fewer benefits compared to their urban brethren, have in the past switched their residency through attaining a college education, marrying or buying homes in cities.
Former finance minister Lou Jiwei has also encouraged changes to the system, theorising once rural residents have access to government services in the cities, they can securely purchase homes there. This, he suggested, could stimulate consumer demand by almost 30 per cent.
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“Farmers can also freely transfer their land and houses in the countryside, which can provide them with initial assets to buy property in the cities,” Lou said at a conference in Beijing late last month.
“The government should consider taking the first steps in reforming the counties around big cities, which produces fewer social conflicts but has a greater effect.”
China’s growth after its accession to the World Trade Organization in 2001 can be partly credited to the mass emigration of farmers to coastal cities, which fuelled a precipitous rise in labour productivity. In the 2010s, further urbanisation was accompanied by a frenzy of property purchases – itself a precondition for hukou transfers in many Chinese cities.
Will urbanisation be China’s new economic engine as population shrinks?
Although urbanisation was listed as one of the country’s economic priorities for 2024 during last month’s central economic work conference, Beijing’s decision-makers are shifting focus to equanimity in public services and the development of small cities.
Premier Li Qiang stressed “people-centred” urbanisation, a re-emphasis on resident quality of life over more quantitative metrics of achievement, during a recent visit to Sichuan province and Chongqing municipality – two regions which account for around one-tenth of the Chinese population.
“We should prioritise transforming the agricultural population into [urban] citizenship, accelerate urbanisation by using counties as important carriers, build up coordinated development of large, medium and small cities, and improve [their] economic and demographic carrying capacity,” he said at a meeting with local cadres.
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China’s “first-tier” cities maintain rigorous standards for new residents and are generally only open to those with high-level skills, world-class education or sizeable investments. As such, their populations remain fairly stable or even in decline. Beijing, for instance, saw its residential headcount fall to 21.8 million in 2022 for a sixth consecutive year of decrease.
In 2022, the National Bureau of Statistics (NBS) reported that 65.22 per cent of China’s population lived in cities. However, when based on residency alone, that ratio drops to 47.7 per cent – a figure with space for improvement in terms of growth capacity.
The pace of urbanisation has also slowed. Last year, according to NBS data, China’s urban resident population reached 920 million – an increase of only 6.46 million from 2021, the smallest such uptick in 42 years. By the end of last year, the number of migrant workers living in cities had fallen by more than 530,000.
Urbanisation is not simply about getting the agricultural population into the cities, but about ensuring their equal treatment
In its midterm assessment of the country’s development plan for 2021-2025, top economic planner the National Development and Reform Commission said the urbanisation ratio has already reached the five-year target of 65 per cent.
With that goal reached, the present task is to help integrate the rural population living in cities, currently estimated at 250 million. With access to public services of equal quality to their urban counterparts, this demographic would, in theory, find it easier to loosen their purse strings.
As the property market continues to languish, Beijing has promoted three major projects as the foundation for a new real estate development model – affordable housing, emergency public facilities and urban villages. But questions linger over whether such a large investment can be sustained as local debts mount, and if so, whether it will be enough to fill the gaps generated by private sector inactivity.
“Urbanisation is not simply about getting the agricultural population into the cities, but about ensuring their equal treatment with urban residents, such as equal access to insurance, pensions, employment, healthcare, and education resources for future generations,” said Zhao Xijun, a finance professor at Renmin University in Beijing.
The tight budgets of local governments, given their sky-high debts and already considerable levels of expenditure, reduce the likelihood China will provide equal social services to migrant workers unconditionally.
“China is unable to completely abolish the hukou system … before 2050 because this would require more money than even the central government could afford,” he said.
