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Reforming Hukou: China's Quest for Inland Urbanization, Part 1

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Editor's Note: This is the first part of a three-part series on China's household registration system and its effects on the country's labor force and economy. Part 1 explains the origin of the system; Part 2 will discuss the role of the system during the Mao era and after China's economic opening; and Part 3 will examine how the Communist Party of China will use the system to support its push for inland development.

China's household registration system, known as hukou in Chinese, is central to the country's statecraft and political history. From the earliest unified dynasties to the Communist Party today, China's rulers have relied on various forms of household registration to reinforce the state's role in shaping the political, social and economic lives of ordinary citizens.

In recent years, however, the hukou system has become an obstacle to China's numerous much-needed economic reforms. Beijing is attempting to reorient the economy away from an overreliance on exports and state-dominated investment and toward greater domestic consumption — a process China's leaders hope will help reduce deep socioeconomic imbalances between rural and urban regions as well as between the country's coastal and interior provinces. In order to push such reforms through, Beijing will likely need to also reform the hukou system.

Origins of the System

The modern hukou system has its origins in the Mao-era dream of industrializing China in the span of a single generation. The revolutionary vision entailed reorganizing Chinese society and the economy around cities and away from farms — where nearly 90 percent of China's 541 million people lived and worked in 1949, when the Communist Party came to power. The attempt to shift from an agriculture-based society to a modern, urban industrial one in turn required new tools for managing — and, when needed, limiting — internal migration. The hukou system gave Chinese leaders a legal mechanism to do this by binding the country's huge pools of rural surplus labor to the countryside, where the workers would toil to feed and clothe the country's nascent urban industrial sector.

Today, the hukou system seems to most observers in China and abroad as an unnecessary holdover from an earlier era of hands-on social and economic planning, one that now creates far more tensions than it resolves. But if the hukou system has outlived its original purpose, its presence and impact on the Chinese political economy nonetheless continue to be felt daily by hundreds of millions of workers, both rural and urban. China's leaders may see reform of the system as necessary to achieve long-term economic, social and regime stability. But hukou is presently so deeply embedded in the structure of the Chinese economy that any genuine effort to reform — much less abolish — the system will face strong opposition from multiple powerful interest groups within the Party itself.

How the Hukou System Works

The hukou system divides all Chinese citizens at birth into two basic categories: agricultural and non-agricultural (or, roughly speaking, rural and urban). Those who receive non-agricultural hukou, especially in major cities such as Shanghai and Beijing, are guaranteed access to a wide range of social services, including healthcare, public education and state-funded pensions. Those who receive agricultural or rural hukou receive few to none of these benefits, but rather are expected to provide for themselves and rely on traditional village and family support networks in times of need.

In recent decades, the rise of China's export-oriented manufacturing sector, centered largely in coastal cities and accompanied by waves of internal migration, has led to the emergence of a second type of division: the distinction between local and non-local hukou statuses. Today, there are an estimated 250 million to 300 million migrant laborers in China. Most of these workers originate and hold hukou from rural regions and small towns in provinces such as Sichuan, Henan and Jiangxi that traditionally have had huge surpluses of agricultural labor, but work in factory towns along the coast.

Because they do not hold local hukou, migrant laborers in coastal factory towns lead tenuous lives. Despite sporadic efforts by the central government to expand the rights and privileges of these workers, they lack consistent access to even the most basic municipal social services; their residence in coastal cities is temporary and officially contingent on employment; they are barred from owning property where they work; their children have limited and poorly-protected access to local schools; and they live with the knowledge that the government can, if it so chooses, force them to return home.

Beijing has not yet conducted large-scale forced returns for a simple reason: the constant, loosely controlled flow of migrant workers from the interior to the coast is the foundation of China's current model of economic growth. The model's primary purpose, in turn, is to absorb this surplus rural labor — and in doing so, maintain social stability and generate capital that the state can then channel into large-scale development initiatives.

After more than two decades, this economic system has endowed Beijing with enormous financial resources, while generating great wealth for local government officials and state-owned or affiliated manufacturers that benefit from the constant supply of cheap, semi-legal labor in their towns and factories. But the growth model has also radically exacerbated social and economic imbalances between coastal and inland regions and intensified the rural-urban wealth gap, threatening to undermine the very social stability and regime security that the economic and hukou systems were designed to protect.

Planned Changes and Implications

For decades, China's political and economic frameworks have been grounded in the strict division of town from countryside. This division made possible the creation of two legally distinct Chinese populations and, in turn, allowed for the creation of two economies, with one (largely inland and agricultural) supplying the raw inputs — including people — to sustain the other (largely coastal and urban). But now that model has reached its limit. Over the next five years, rising input prices — driven in large part by demand for higher wages by migrant workers — will increasingly undermine the global competitiveness of low-end, export-oriented manufacturing on the Chinese coast. Anticipating this shift, Beijing has tentatively begun to "rebalance" — an umbrella term for a gradual, multifaceted process of economic and social reform aimed at rebuilding Party legitimacy and regime stability by reducing the country's regional imbalances and wealth gaps.

Central to the rebalancing process is the creation of a supplemental urban industrial base in China's interior provinces. But to bring that new base to fruition in time to offset the decline of low-end manufacturing on the coast, urbanization rates will need to increase rapidly in inland provinces, where at least 60 to 70 percent of the population is registered as "agricultural" hukou holders. Urbanizing the interior will involve not only the transfer of more inland agricultural workers to cities, but also convincing at least some of the workers currently on the coast to return inland. To understand what this inland urbanization process means for China's long-term social, political and economic stability, how Beijing will attempt to carry it out, and the constraints the government will face in this process, it is helpful to first look at the evolution of the hukou system as a tool for organizing and controlling Chinese society.

The Hukou System in Chinese History

The hukou system has existed in various forms in China for 2,500 years. Records of hukou-like programs of household registration for defense purposes date back to the semi-mythical Shang and Zhou dynasties around the 5th and 6th centuries B.C., with the first fully formed system emerging under the Qin and Han dynasties after the 3rd century B.C.

Early hukou systems served two primary purposes: social management within the nascent states centered along the North China Plain and Loess Plateau, and defense against internal insurrections and incursions by nomadic tribes from the north. To these ends, the system's most important function was to control and limit migration among regions. It did this by binding an individual's social and economic life to his or her birthplace. During China's first unified dynasty, the short-lived Qin, anyone caught traveling beyond their designated hometown or region without official permission was liable to arrest, imprisonment and even exile — an extreme punishment in a society where employment and welfare were grounded in familial and village ties.

The early hukou system physically reinforced the state's presence by anchoring rural populations to the land, thereby limiting population movement. It also gave the state greater control over the spread of ideas and technologies, local resentments and underground organizations. This provided the central government an institutional buffer against possible challenger states and the buildup of excessively large and uncontrollable pools of what are called "floating people" in China — migrants who had fled their native regions in search of refuge from war, famine, natural disaster or other disturbances.

The concept of floating people is an important motif in Chinese dynastic history. It is often seen as an early symptom of the decline of centralized power, in part because massive, free-floating migrant populations are ripe for rebellion and revolt. Moreover, the emergence of floating people in the first place often suggests that other institutions of central governance — market networks, transport and communications infrastructure, emergency aid programs, military and security apparatuses — are beginning to crack.

The hukou system was designed to prevent such a breakdown. With the system firmly in place and every household properly accounted for, it became possible for local, regional and central governments to levy taxes, enforce social stability and conscript labor for large-scale infrastructure projects, such as dikes along the Yellow River, canals linking disparate commercial centers, and precursors to the Great Wall. The maintenance of the hukou system and overall social and political stability were thus bound in a mutually reinforcing circle. The unbalancing of one element could undermine the entire social organism, triggering a process of political and regional disintegration that would be intensified by deep-seated Confucian notions of moral and social order. Few dynasties managed to regain that balance once lost, and even then often only after severe bloodshed.

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