Education World

A large number of experts say the household registration system should be scrapped because it is discriminatory toward rural residents, especially migrant workers. But what after that? Two academics share their views.

Paul Kong: Scrapping hukou is easier said than done

Although Chinese society agrees that the hukou (household registration) system should be reformed, the process is still stuck in a systemic quagmire for want of a practicable scheme.

If the hukou system is abolished without having an alternative plan in place it would create new, more complicated problems. Or, a similar rigid population management mechanism would replace the old one, trussing up the rational movement of rural migrants in cities.

It is not an easy task to grant 1.3 billion people equal access to urban facilities, let alone providing them with the standard needs that citizens of advanced cities get. In fact, the country’s limited resources and huge population makes that a very difficult proposition.

According to a rough estimate, the government would need to spend an additional 1.65 trillion yuan every year to ensure all citizens enjoy standard social security. The break-up follows:

Medicare: There are differences between the Urban Resident Medicare Security and the New Rural Cooperative Medicare Scheme. The lack of healthcare funds makes it impossible for the government to ensure urban and rural residents have equal access to medical facilities. Take 2009 for example. The overall national medical care security fund was about 350 billion yuan, while 2.5 trillion to 3 trillion yuan was needed to pay for the entire population’s medical expenses. And to narrow the gap, the government provided an additional funding of about 250 billion yuan, which just met the basic medical needs.

Pensions: The pension systems for urban and rural areas are different as well. Urban residents may get a monthly pension of 500 yuan per head on average in the future. But the 100 million needy senior rural residents’ pensions are embarrassingly low. If every senior rural resident is to get a pension of 500 yuan a month, half of which is expected to be paid by the government, another 300 billion yuan would be needed every year.

There is another problem: Most of the senior citizens in rural areas cannot afford to pay the other half of their pension contribution. It is almost impossible for rural residents to set aside 3,000 yuan a year as their pension contribution when their average annual income is only 5,153 yuan (going by last year’s figures).

Subsistence allowance: Urban residents’ personal subsistence allowance is about 300 yuan a month, which is more than half of the average monthly income in rural areas. That means the government has to contribute another 400 billion yuan to equalize rural and urban residents’ subsistence allowances.

Education: There is a wide gap in education resources between urban and rural areas. The government has to increase its expenditure on education by a huge margin to meet the needs of rural immigrants’ children. Vocational training is basically free for urban residents now. But the government has to spend another 700 billion yuan to train new rural immigrants – that is, if the annual per capita education cost remains at 10,000 yuan (according to current figures).

The additional annual spending on the four heads would be at 1.65 trillion yuan for the next five years only if the government does not abolish the hukou system without making contingency plans to deal with developing situations. And apart from the four heads of expenditure issues such as housing and transportation, too, would need additional expenses to be fixed.

Does the central government have enough money for the additional expenses? The answer is no. The government’s overall revenue in 2009 was 6.8 trillion yuan, with the national social security revenue being less than 1.6 trillion yuan. If the income from transfer of land-use rights and public welfare lottery are taken into account, the total national revenue would be about 12 trillion yuan.

Compared with the global standard, China’s fiscal revenue contributes a much bigger share to GDP. For example, China’s GDP is only one-third of America’s and its fiscal revenue two-thirds. This is a fairly high proportion because America’s fiscal revenue is only one-fifth of its GDP.

The share of fiscal revenue in the Chinese government’s income invariably leads to overpricing in the real estate market and to higher taxes. Hence, it doesn’t make economic sense to aggravate the already intense social problems by increasing taxes to pay for the cost of abolishing the hukou system.

Besides, it is not that the government is reluctant to abolish the hukou system.

But it knows that before doing so it has to establish a set of practicable funding schemes to build a new, comprehensive national social security system. Hence, it is irresponsible and irrational to blame the government for the stagnation of the household registration system reform.

Tao Ran: Where there’s a will, there’s a way to reform

The term “hukou reform” has more or less become a catchphrase in the Chinese media and among China’s policymakers. Premier Wen Jiabao has said the government will steadily advance the reform of the decades-long hukou (household registration) system to ensure migrant workers enjoy the same rights as urban residents.

The importance the central leadership attaches to hukou reform is reflected in the Communist Party of China’s “No. 1 Central Committee Document”, issued at the end of January and presented to the just-concluded National People’s Congress. The document says efforts are being made to reform the hukou system in small and medium-sized cities (with population less than 500,000) only to allow migrant workers to settle down there and enjoy the same public facilities and services as people with permanent residence permits do.

But it is necessary to weigh the concrete action plans of the central and the local governments both to know whether the reform will work. And no significant progress can be made on this front unless three specific issues are addressed.

First, hukou reform cannot be successful if just relatively small cities are opened up to migrant workers or other rural migrants. A significant proportion of the country’s migrant workers are employed in large and mega-cities because they offer stable job opportunities in manufacturing and low-end service sectors. It’s those large and super-large cities that have proper public facilities and services. And it’s there that most of the younger generation migrants hope to spend their lives.

Hukou reform pilot programs were introduced in many small and medium-sized cities as early as the mid-1990s. But they met with limited success because such cities offered limited employment opportunities and poor public services. So if hukou reform is confined to relatively small cities, there is reason to be skeptical about its progress.

Second, hukou reform should not only target workers from rural areas of the same province, prefecture or county. China’s rural-urban migration involves large-scale movement of people from agriculture-based inland areas to the more industrialized and urbanized coastal region. Thus a significant percentage of workers from rural areas work outside their home provinces, prefectures or counties. So to be effective, hukou reform must help rural migrants from outside the home county, city or province.

In the past few years, a number of locally run hukou reform projects have been introduced in Chengdu (Sichuan province), Wuhan (Hubei province) and some cities of Zhejiang and Guangdong provinces. But they have met with limited success, because they usually target only rural migrants from within their jurisdiction. Thus it is still extremely difficult, if not impossible, for a worker who has migrated from the inland province of Hunan to, say, Guangzhou or Shenzhen in Guangdong province to get an urban hukou there.

Finally, and perhaps most importantly, effective hukou reform should cover the hukou-linked urban public services. Currently, the privileges include urban social assistance (known as Minimum Livelihood Guarantee Scheme), equal access to urban public schools for migrants’ children and locally funded public housing schemes.

It is a common misunderstanding that China’s urban hukou-linked benefits include social security schemes such as pension, medical insurance and unemployment insurance. The social security schemes are job-related rather than hukou-related insurance. Granting urban household permits to rural migrants, therefore, doesn’t imply that city governments would provide social insurance cover for them.

But to make the hukou reform really successful, city governments have to fund the social security schemes, and provide public housing to the migrants and schooling to their children. Unfortunately, local governments often have little incentive for doing this.

In 2004, the central government mandated that city governments with migrant populations provide equal access to schools to migrants’ children but didn’t provide additional financial resources for the purpose. Hence, migrants’ children still have limited access to schools in cities.

If the central government really wants to push hukou reform forward, it should either provide financial assistance to local governments or generate additional tax revenue at the local level to do so. One possibility is to introduce property tax in the local tax system while asking local governments to allocate at least some revenue to provide migrants’ children equal access to schools in cities.

Of the three urban hukou-linked services, providing public housing for migrants could be the most expensive. But if some coordinated reform in land development could be implemented to enable rural migrants’ collectives to develop land for housing rentals on the fringes of cities, the market rather than the government could provide affordable yet decent housing for the hundreds of millions of China’s internal migrants.

One needs only to look at the urban villages in Shenzhen and Guangzhou to understand such an arrangement. Unlike most other Chinese cities, the local governments there are more permissive to land development by rural migrants’ collectives in the suburbs. As a result, millions of migrants from other parts of the country find the massive apartment buildings in the urban villages of Shenzhen and Guangzhou to be the only affordable housing for them.