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Cities Lift Limits

Initiatives to relax China’s decades-old hukou system at local and central levels may soon change the face of the country’s urban populations as they compete for skilled professionals

By NewsChina Updated May.1

For much of the past two years, China’s second-tier cities have been engaged in a talent war as local governments launch policies aiming to attract skilled workers. Entering 2019, the competition appears to have escalated as more cities join the melee with expansive policies to attract both talent and population.  

China’s largest cities still implement the hukou system, or household registration policy, to control the influx of migrant workers from rural to urban areas by limiting their access to public services, including education, medical benefits and even housing.  

According to data released by the National Bureau of Statistics, 59.6 percent of China’s 1.395 billion people live in urban areas, or 831 million. Among them, only 605 million have an urban hukou, which means about 226 million people of rural origin now live in cities without official residence permits. If inter-city migrants are taken into consideration, it is estimated that in China’s first-tier cities alone, namely Beijing, Shanghai, Guangzhou, and Shenzhen, there are more than 30 million migrants living without a local hukou.  

Over the past few decades, amid China’s rapid urbanization, small cities have gradually loosened their household registration policies, with most county-level cities abandoning it altogether. But for most of China’s major cities, the hukou policy is still strictly implemented. Only workers with skills in demand are offered a hukou, while even high-income professionals have to wait years to apply. 

This changed in 2017, when several provincial capitals loosened their hukou policies. Chengdu, capital of Sichuan Province in southwestern China, for example, grants all university graduates a hukou as long as they have a full-time job in the city. In Wuhan, capital of Hubei Province in central China, those who find employment within three years are eligible for a hukou.  

Ever since, an increasing number of second-tier cities have joined in the competition to attract talent. By March 1, at least 20 major cities have issued policies offering benefits and incentives to attract university graduates and skilled workers to settle in their cities.  

Demographic Change
Different from the rather prudent policies of previous years, the competition this year transformed into a war for population. 

Many cities are not only substantially lowering the educational and age requirements for settlement, but also are offering monetary incentives such as rent subsidies to attract more people. 

Shenyang, capital of Liaoning Province in northeastern China, lowered the minimum educational requirement to secondary vocational school, and raised the age limit for bachelor’s degree holders to 45 for people to apply for a local hukou. Xi’an, capital of Shaanxi Province, scrapped the age limit for bachelor’s degree holders this year. Nanjing, capital of Jiangsu Province, increased its monthly housing subsidies from 1,000 yuan (US$150) to 2,000 yuan (US$300). 

Even Guangzhou and Shenzhen, two first-tier cities in Guangdong Province, have joined in the competition. In 2018, the provincial capital Guangzhou allowed university graduates to apply for a hukou after 12 months of full-time employment. This year, Guangzhou authorities shortened the period to six months. Shenzhen, which neighbors Hong Kong, expanded its policies to cover more groups and now offers a cash bonus up to 30,000 yuan (US$4,475) to qualified hukou applicants. 

So far, only the megacities of Beijing and Shanghai have not made substantial changes to their hukou policies. According to Ma Li, former director of the China Population and Development  
Research Center, the competition for talent and population is the natural result of a major ongoing demographic change. After decades of low birth rates because of the one-child policy, China’s population is rapidly aging. “As China’s demographic dividend disappears rapidly, cross-city competition for human resources will become the norm,” Ma told NewsChina.  

For many cities, preferential talent policies are paying off. Among them, Xi’an is considered the most successful in the talent war. In 2018 alone, the city granted residence permits to some 700,000 people from nearby rural areas who were already living in the city. It also issued residence permits to 320,000 new residents, accounting for about three percent of its population. As most of the new migrants tended to be younger than locals, the average age of the city’s population dropped by one year, according to local authorities. 

Skepticism Remains 
While the loosening of the hukou system is lauded as a major step for social progress, some experts remain skeptical over local authorities’ motivations for the policies. With runaway housing prices and high local debt levels, the Chinese government has worked to tighten the real estate market over the past two years. Many cities are now required to limit non-residents from buying homes to cool the market.  

By loosening the hukou system, local authorities are seeking to effectively bypass those limits and stimulate the real estate market, which remains a major source of government revenue. Xi’an, for example, witnessed its greatest growth in housing prices in 2018 with an annual increase of 24.8 percent.  

Zhang Dawei, lead analyst of Centaline Property Agency, a Hong Kong-based company, told NewsChina that for cities like Xi’an, which had a population of 9.8 million at the end of 2018, the goal is to obtain its status as a “super city,” which under the official city-tiering system is defined as having a metropolitan population of more than 10 million. “By obtaining super-city status, Xi’an is eligible for a package of policy and budget support from the central government,” Zhang said.  

However, Zhang also warned that as cities link talent policies to home buying eligibility, it could lead to a distorted real estate market and result in a property boom that could eventually collapse.  

But not everyone agrees with Zhang. According to Zhao Qiuchi, an economics professor at the Capital University of Economics and Business, despite the short-term effect to boost housing prices, the loosening of the hukou system serves to restore the real estate market, rather than distort it. “After all, housing prices should be determined by the market,” Zhao told NewsChina.  

People crowd a service desk in Binhai District, Tianjin, which deals with hukou transfers for skilled workers, May 19, 2018

From Local to National
Despite the controversy, the new round of liberalization of the hukou system launched in China’s major cities appears to be backed by the central government. On April 8, the National Development and Reform Commission (NDRC), China’s top economic planner, released a guideline outlining major tasks for China’s “new types of urbanization” in 2019.  

In the document, the NDRC stressed that China will substantially relax residency limits on domestic migrants for China’s biggest cities, which marks a significant shift in China’s long-time policy to prioritize population control.  

More specifically, cities with a population between three and five million are asked to “comprehensively lift or relax restrictions” and cities with more than five million should “lower the threshold and boost the number of people gaining residency permits,” read the document. It is estimated that 75 Chinese cities will be affected under this policy.  

According to Zhou Tianyong, a researcher at the Central Party School, free movement of labor between cities and between rural and urban regions can boost domestic consumption, deal with the ongoing economic slowdown, and help China escape the middle-income trap. 
In an interview with Singapore-based newspaper Lianhe Zaobao published on April 9, Zhou said his research shows that in 2016 alone, restrictions on free movement of labor led to losses of 4.38 trillion yuan (US$654m) in domestic consumption, of 18.52 percent of the year’s total individual consumption.  

It is still unclear whether the policy will be implemented according to a central agenda or at the local level. But the massive loosening of China’s decades hukou system may have a major impact on China’s urban landscape.  

Contrary to existing perceptions that China’s urbanization is still in full swing, a research team led by Long Ying, an urban planning expert with Tsinghua University, found that the population in one-third of Chinese cities has been shrinking.  

According to an article in the South China Morning Post on March 18 that reported the findings, the team used satellite imagery to monitor the intensity of light at night from more than 3,300 cities and towns between 2013 and 2016. They found light intensity dimmed in 938 cities, or 28 percent. As China’s big cities, or those with more than three million people, adopt more migrant-friendly policies, smaller cities, where the quality of public services is less attractive, jobs less abundant and wages are lower, could shrink further.  

Apparently, policy makers are taking this possibility into consideration. In the guideline released in April, the NDRC said smaller cities should be ready to downsize and shift their focus to the quality rather than quantity of its population, and centralize their population and public services. 

Amid the backdrop of China’s ongoing economic slowdown and demographic changes, how major policy shifts in China’s hukou system will affect urbanization and economic growth will be a major focus in the near future.