Volume 44, Number 172,
January-March 2013
Migration and Exclusion in China:
the Hukou System
Gabriela Correa and René Núñez
THE CHINESE DILEMMA: WELFARE OR LOW LABOR COSTS ( ...continuation )

The decision rests upon the fact that Chinese economic growth is strongly dependent upon exports, and these exports depend on low labor costs that are traced back to the abundant labor supply. But in order to maintain the high growth rates of the past few decades, China must strengthen its internal market. This would be possible by rapidly increasing the income of a large portion of the population, but it would also elevate labor costs. The problem is thus a choice: growth or the welfare of the population.

If the government is considering the possibility of strengthening internal consumption to find a new growth balance, as proposed after 2009, they would have to take more action to reduce inequality, although, as has been mentioned, eliminating hukou would mean significant fiscal pressure on provincial and municipal governments.

As such, this study maintains that the elimination of hukou in the short and medium term is improbable, as it is the most effective institutional method to maintain a large labor supply to keep salary increases under control and attract foreign investment. In other words, in order to keep their production attractive in the international market, China must have a segmented labor market, and they have achieved this segmentation through the hukou system.

Maintaining the hukou registration means that the welfare of a large portion of Chinese citizens will be affected, because it appears that central, provincial and local Chinese governments prefer to deal with these social costs in order to maintain growth rates. This prediction is partially based on the fact that recent flexibility in the hukou system has not meant great change for a vulnerable population, despite the fact that they are identified as such: these are migrants who have resided for many years in large cities.

The public policies that have been implemented to close the inequality gap still have not made a difference for the rural migrant population. This problem is further worsened because one of the government’s strategies to reduce poverty has been to promote migration (Asciutti, 2006: 21).

In other words, on the one hand, the government is pushing migration because it is one of the best ways to find a job, and the resulting remittances help improve living conditions for families, but at the same time, when they implement public policies to improve the welfare of the population, those that were encouraged to leave their homes behind and ignore established migration controls are left out of these benefits. In this way, migrants face adverse conditions in both places of residence; they are encouraged to migrate, but when they arrive to the city, they find a segmented labor market, with few possibilities to move up the social ladder and a social security system from which they are excluded.

FINAL COMMENTS

Despite the fact that various reforms to the hukou system have resulted in more options to improve the standard of living by migration, in terms of welfare, it has increased inequality. Depending on their income, migrants may be able to access private social security services, but even so, they face difficulties and exclusion due to their social status.

Migrants that maintain their external registration and reside in cities must deal with a lack of access to public social services. Education, which represents an opportunity to reach a better standard of living, is not entirely ensured for their children. Access to health and housing services depend on their ability to pay, and the pension systems do not cover the option to relocate to a city. Nor do the current health insurance and pension systems allow for contributions to be transferred between provinces. In summary: migrants that maintain external registration but reside in cities face a discouraging panorama. They do not enjoy state benefits, they have unstable jobs and they face poor and risky labor conditions.

Reviewing the arguments presented here supports the view that the rapid elimination of hukou in the short and medium term is improbable, because the system has been effective to maintain a high labor supply that will continue to attract large investments. In other words, to keep exports attractive, China requires a segmented labor market, and they have achieved this segmentation through the hukou system.

Maintaining the hukou registration means that the welfare of a large portion of Chinese citizens will be affected, because it appears that central, provincial and local Chinese governments prefer to deal with these social costs in order to maintain growth rates. The importance that the central government has placed on recognizing the role of migrants in the social and economic life of cities will not convince lower level governments of the same, as long as there continues to be a lack of fiscal mechanisms to deal with the cost of providing social services to residents living in cities.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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