China in Transition

Urbanization as a New Growth Engine:
"Citizenization" of rural migrant workers is the key

Chi Hung KWAN
Consulting Fellow, RIETI

China is promoting urbanization with a focus on "citizenization," in which the same rights enjoyed by urban residents will be given to rural migrant workers and the family members living with them (collectively called "migrants"), as one way to increase domestic demand and improve productivity. To this end, the current household registration system and the rural land system must be changed.

Prospective effects of expanding domestic demand and improving productivity through urbanization

Although the urbanization ratio (the ratio of the population in urban areas to the entire population) in China rose from 17.9% in 1978—immediately before the start of China's reform and open-door policies—to 51.3% in 2011, it is still low compared not only with that of developed countries, but also other developing countries at a similar stage of growth, suggesting that there is plenty of room for growth. With export growth slowing down in recent years against the backdrop of the global economic crisis and the rise of protectionism, the government is hopeful that urbanization will help sustain economic growth by expanding domestic demand and improving productivity.

First, urbanization will increase consumption demand. Reflecting the fact that productivity in the manufacturing and service industries, which are mainly located in urban areas, is much higher than that in the agricultural sector, the per capita income of urban residents is about three times that of rural residents. In proportion to this, the consumption gap between urban areas and rural areas is also significant. Along with the advancement of urbanization, consumption will grow as increasingly more farmers become urban residents.

Also, urbanization will create huge investment demand, particularly in infrastructure (electricity, water, roads, communications, gas and thermal, waste and sewage treatments, etc.) and public service facilities (schools and hospitals, etc.). Investment in real estate is also expected to expand as more commercial and industrial facilities and housing will be constructed.

Urbanization will also help modernize agriculture. If a large number of farmers leave farming villages and obtain jobs in non-agricultural sectors through urbanization, their income from non-agricultural sources will increase, and their agricultural income will also climb in tandem with higher productivity as the large-scale management and modernization of agriculture progresses. Also, because land prices in farming villages near cities will rise, local governments and farmers will be able to make a profit by selling their land.

Top priority for the new leadership

Based on this recognition, China is actively promoting urbanization. In the keynote report of the 18th National Congress of the Communist Party of China, held in November 2012, urbanization was positioned as one of the drivers of future economic development, along with industrialization, the transition to an information society, and agricultural modernization. At the Central Economic Work Conference, held for the first time under the new regime of Xi Jinping on December 15-16, 2012, the promotion of urbanization was seen as a high-priority economic policy for 2013, along with stabilizing the macro economy, strengthening the agricultural foundation, improving and refining the industrial structure, improving people's standard of living, and promoting structural reforms and opening up the country to foreign business.

At the Central Economic Work Conference, following the statement that "urbanization is a historical undertaking to build a modern China, and has the greatest potential to increase domestic demand," the subsequent policy was presented: "It is necessary to pay attention to environmental burdens and protect resources by closely connecting regional economic development to the location of industries. We have to promote steadily and efficiently the citizenization of migrants from rural areas to urban areas as an important mission. We will follow a path to a new kind of urbanization, focusing on intensification, smartization, environmental protection, and low carbon by abiding to the philosophy and principles of ecological progress into all processes of urbanization." Among these, the citizenization of migrants will be the prominent feature of this new kind of urbanization.

Citizenization of rural migrant workers is the key

Until now urbanization in China has been deemed to be the equivalent of building cities. The emphasis has been on the expansion of a city's area and size, while improving the people's standard of living has not been the major concern. Rural migrant workers in particular are regarded simply as part of the labor force, and they and their family members are not treated as real "citizens." In fact, household registration in China is divided into rural and non-rural (urban) types. As of 2010, 309.6 million people, or 46.5% of the urban population, which amounted to 665.7 million people, have not acquired urban household registrations and remain registered as rural households (Table 1). Because of the restrictions related to household registration and other associated systems, these people can hardly enjoy the same rights to which residents with urban household registrations are entitled, such as suffrage, social security, and compulsory education.

Table 1: Demographic Composition by Urban and Rural Household Registration (2010)Table 1: Demographic Composition by Urban and Rural Household Registration (2010)
Source: Compiled by the author based on the "Tabulation of the 2010 Population Census of the People's Republic of China" (China Statistics Press, 2012) by the Population Census Office under the State Council/Department of Population Statistics, State Statistical Bureau

For the citizenization of migrants from rural areas to urban areas, the government is carrying out the following reforms based on its 12th Five-Year Plan, which began in 2011, by differentiating migrants into those who have met the requirements for acquiring urban household registrations and those who have not yet.

First, for those migrants who have met the requirements, the government should ensure the protection of their legitimate rights to contracted land and residential land in rural areas, while fully respecting their voluntary options related to migration to urban areas. Based on a policy of gradually promoting citizenization with measures that take into consideration actual conditions, the government will grant urban household registrations to those rural migrant workers with stable jobs and who have lived in an urban area for over a certain period of time, as well as to their family members living with them. In this process, big cities will continue to maintain stricter application standards than smaller ones.

Meanwhile, for those rural migrant workers who have yet to meet these requirements, public services should be improved. First, the right of their children to be accepted by a full-time public elementary school or middle school in their residential district and receive the same compulsory education as that for local children should be guaranteed, and the transition from a mid-level to a higher education for these children should be facilitated. Those rural migrant workers who maintain a stable employment relationship with a company should be eligible for the basic pension system and medical insurance for urban employees. In addition, a subsidy system should be established for rural migrant workers who undergo a basic job training program, and the funding for this system should be managed and allocated uniformly at the provincial government level. Finally, to improve their living environments, they should be eligible for urban public housing.

A further reform of the household registration system and the land system will be the key to the success of the citizenization of migrants. Under the current land system, farmers cannot freely dispose of residential land or contracted land in their name. Also, when they change their household registrations to relocate to an urban area, they must abandon these lands. Many rural migrant workers are unwilling to acquire urban household registrations in exchange for their land rights, anticipating that they will be able to give up their land under more favorable terms in the future. If most of the benefits gained from land are accrued to the farmers by clarifying their ownership, including the right to sell land and improved compensation terms, then the citizenization of migrants, symbolized by their acquiring of urban household registrations, will be accelerated.

The original text in Japanese was posted on January 11, 2013.

January 11, 2013