China's urbanization reforms will boost its economy

On April 8th, the Chinese central government announced its official paper, "Priorities in Urbanization Development 2019". Some commentators believe this document, if implemented, will draw a dividing line between the "old" and "new" style of China's development and will result in elimination of many traditions inherited over thousands of years for the social and political management of the Chinese nation.

Primarily, this official paper concerns the reform of the household registration system (Hukou in Chinese), which officially registers and identifies a person as a resident of an area, and holds information such as name, parents, spouse, and date of birth.

Until recent years the household registration system served the government well as an effective tool for social management. It was part of an integrated system encompassing public education, healthcare, employment and distribution of rations. Furthermore, Hukou has effectively built China into a dual society with public services and social security benefits distributed differently between rural and urban sectors.

In the old days, when a peasant visited relatives in cities he or she needed to hand over a pass issued by their hometown government to the local government where they were visiting.

The authority and effectiveness of this household registration system has dramatically reduced since the start of reforms in 1978, as tens of millions of migrants have been encouraged to seek jobs in cities. However, some of the key elements of it still remain functioning including provisions that prevent rural migrants from settling in cities. For example, children of rural migrant families are denied access to public schools in cities, and migrants have to pay more when visiting public hospitals in cities because their rural healthcare coverage is vastly insufficient compared to the coverage of urban residents.

Calls to end this discriminatory household registration system have been loud high from time to time in the past, but two concerns have prevented any fully implemented action.

First, it has always been a worry that massive influx of migrants into big cities would intensify problems ranging from escalating housing prices, traffic congestion, and crime, to pollution.

Second, the household registration system, which assigns rural residents a block of land in rural areas, has always been considered a safety net capable of accommodating the return of migrant workers when the urban economy runs into trouble.

The notion of having a "balanced development between big cities and small-medium cities" has had the upper hand when urbanization is one of the highlighted drivers of the economy.

However, such efforts have been contradicted by the actual movement of people and capital, which are mainly heading to the southeastern coastal regions. Consequently, while prices for land and property have skyrocketed in major coastal cities, an oversupply of empty industrial parks and ghost cities has become common in the central and western regions. The insufficient use of land and capital has contributed to a rapid increase in the debt level of local governments, and this has become a huge financial burden to the Chinese economy.

The issuing of of "Priorities in Urbanization Development 2019" indicates a change of direction. It stipulates that cities with a population of one to three million should completely abolish restrictions prohibiting rural migrants from settling down in cities. Cities with a population of three to five million should be fully open to rural migrants and assist their settlement.

These new policies effectively mean the end of the household registration system in most Chinese cities, except for a few megacities with a population over 10-20 million, such as Beijing, Shanghai, Guangzhou and Shenzhen. In addition, by removing restrictions on the movement of human resources, this policy another target: accelerating the formation of major city clusters: cities grouping together with those major cities as their core.