Opinion & Commentary
Chinese Urbanization Put on Hold
The communiqué released last week after the annual Central Economic Work Conference, reportedly the most important gathering for deciding economic policy in China, made for dry reading. But one section stood out: Beijing will gradually relax the hukou, or household, registration system.
This, in theory, will eventually allow many rural Chinese citizens an opportunity to seek a better life in the city – not just speeding up the rate of poverty alleviation but giving domestic demand in China a much needed shot in the arm. But there is little joy ahead for the hundreds of millions of rural poor. In reality, greater opportunities will still elude the vast majority.
First things first: why do so many China watchers and economists become excited when there is talk of relaxing the hukou system? Contrary to popular belief, the Chinese economy is far from being a free-market one. Land, capital and especially labour are still controlled and regulated by the Communist Party. True, hundreds of millions of rural residents have tried their luck in the sprawling cities. But, even for rural Chinese working in urban areas, their rights are severely restricted. For example, they need temporary visas to live and work in urban centres, which can be annulled at the whim of city officials. They cannot buy long-term leases for land. Having the misfortune of being born in rural areas, they cannot build the better life their urban counterparts are enjoying.
This is why any possible relaxation of the hukou system is important. One of the great stories behind China’s spectacular growth has been the pace of urbanisation. When reforms started in 1979, less than 5% of the population lived in cities. It is now 45%, and wealth is increasingly concentrated in urban China.
While the lion’s share of the country’s capital is destined for state-controlled businesses in cities, growth in rural business income from the 1990s onwards is actually half what it was in the 1980s. Worryingly, World Bank studies indicate that almost half of all China’s rural residents have seen their net incomes stagnate or decline since 2000, while poverty and illiteracy have doubled. It is no wonder that hundreds of millions of rural Chinese dream about a better life in the city.
The solution, therefore, appears simple: relaxing the hukou system and allowing greater freedom of movement from rural to urban China will speed up the country’s rate of urbanisation. This, in turn, ought to increase opportunities for many more of the 800 million rural citizens. But there are two reasons why relief might not yet be at hand.
First, any possible relaxation of hukou rules – if it occurs – will only probably apply to migrant workers already in cities. However, the implementation of any new rules will be the responsibility of the same local city officials who regularly abuse or ignore even the limited rights of the existing migrants.
Second, the narrative of the Chinese people growing richer on the back of rapid urbanisation ignores important on-the-ground realities. For example, although many focus on urban-rural inequality, far too few realise that inequality within cities such as Shanghai is actually at least as bad.
This means that the hope of a better life for rural residents might not lie in moving to cities. Furthermore, even though the state controlled sector in urban areas receives over three-quarters of the country’s capital, studies suggest that the state sector is three to four times less efficient at generating jobs than its private-sector counterparts. In other words, China’s state-led model cannot generate anywhere near the number of jobs required to keep any constant inflow of rural residents to cities employed.
Internal memos and reports show that the party has known this for a while. In fact, one of the reasons why the hukou system has never been relaxed is because the prospect of urban unrest grows exponentially when tens of millions of unemployed rural Chinese roam the cities with unfulfilled and frustrated expectations of a better life. As far as Beijing is concerned, it is safer to force them to remain in the countryside.
The long-term solution, when it comes to helping the rural poor, lies in the state-controlled banks lending to the most profitable companies in urban and rural areas rather than directing loans to businesses with better political connections. This would allow China’s 40 million to 50 million private-sector companies to compete on an even footing – essential for rapid job generation and ensuring a more rapid and even rise in the income of the majority of citizens. Meanwhile, there is little in the Central Economic Work Conference communiqué that will change the still-dim prospects for the poor in rural China.
Dr John Lee is the foreign policy fellow at The Centre for Independent Studies in Sydney and a visiting fellow at the Hudson Institute in Washington. He is the author of Will China Fail?
