China: Urbanization and Hukou Reform (Page 3 of 3)

The result is that urbanization will not fulfill its potential of maximizing consumption growth until migrants become more willing to forego their land use rights and become permanent urban residents. The fact that migrant workers' land often sits unproductive while they toil in the cities only adds to the economic disruption caused by the hukou.

The best solution to these problems is widely considered to be reform of rural land ownership. Currently rural land is owned collectively, although whether this means collectively by the rural residents or by rural residents and the government is unclear. If, however, rural residents were given the power to trade or mortgage their land use rights, and be fairly compensated for doing so, it would mean not only would they be more willing to swap their rural hukou but they would also start their urban lives with capital. This would allow them to escape the poverty trap that has traditionally greeted migrants.

Further advantages of allowing rural land to be freely traded are that it would become possible either to consolidate small plots into much more efficient large-scale farms or free up land for construction to further bolster urbanization.

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However, how far China's leaders are willing to go with liberalization of China's rural land remains to be seen. Not only is collective ownership a totemic issue but there are real concerns about both cutting rural hukou holders' ties to the land and food security. Opponents argue one of the key reasons social stability was maintained following the laying off of approximately 23 million migrant workers during the global financial crisis was because they were able to return to their land. There are also fears that liberalizing the ownership of rural land would endanger China's self-sufficiency in domestically produced crops and thereby threaten China's security.

As with the issue of funding, however, it appears decisions about land reform are still being hotly debated. It has recently been reported that a pilot scheme to make non-farming rural land tradable for development, which had been expected in the upcoming economic reform plan, has been kicked into the long grass after opposition from elements within both central and local government. Central policymakers are reportedly worried the scheme could be abused and stoke further social unrest and local governments are opposed because the scheme would disrupt their monopoly on land.

Genuine Reform: Too Difficult?

While it is clear that the hukou system cannot be dismantled overnight, the increasing risk it presents to China's new economic priorities mean some sort of reform is inevitable.

However, genuine and substantive change will only come if hukou reform is pursued as part of a comprehensive and coherent urbanization strategy that addresses rather than ignores many of the related but highly contentious issues. It seems whether this will happen is currently the subject of fierce debate inside the Communist Party.

If agreement can be forged and hukou reform is tackled alongside much-needed changes to land and fiscal policy then it looks likely China's new urbanization strategy will play an important part in shifting the country to a more sustainable development path. If not, further urbanization will in all likelihood only exacerbate many of the already serious problems facing China.

John Marshall is a freelance writer focusing on China. Previously he worked at a management consultancy in Beijing advising multinational companies on their China investment strategies and in London for the U.K. government on trade policy.

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