The Hukou is a fundamental identity certificate for Chinese nationals and an important administrative tool for the government to track its population.
The Hukou system has been criticized in the past because it has a big impact on the movement of workers, and results in economic losses for the country.
In recent years, the Chinese government started a series of reforms to respond to this criticism and to improve the mobility of workers.
In this article, we take a closer look at what is the Hukou system and how it can impact employers in China.
What is the Hukou system?
Hukou is a Chinese mainland home registration system introduced in 1958. The system itself is called “huji” and dates back to ancient China; Hukou refers to an individual’s registration in the system. A household registration record, which includes identifying information such as a person’s name, parents, spouse, and date of birth, formally identifies a person as a permanent resident of a region.
In its current form, it serves three key purposes: controlling internal migration, managing social protection, and maintaining social stability.
The original hukou system categorizes each Chinese citizen as a rural hukou holder or urban hukou holder. The first was usually assigned to citizens that lived in villages or towns and the second is for people living in bigger cities. This dual hukou system was abolished in 2014.
It contains information related to the citizen and in particular:
- Type of hukou
- Legal address
- Sector of activity
- Physical description
In specific instances, such as while study or work, Chinese people can also transfer their hukou.
Students can move their hukou to the city where they attend university, but it will expire when they graduate. Migrant workers can be granted an urban hukou if they meet specific requirements, like educational attainment, technical expertise, and entrepreneurship.
Brief history and evolution of the Hukou system
The Hukou system, also known as the household registration system, has its roots in ancient China. It was used as a method of tracking population movement and preventing social unrest during times of war and famine. However, the modern version of the Hukou system was established in 1958 by the Chinese government under the Communist Party.
Initially, the Hukou system was designed to regulate the movement of people between rural and urban areas. Chinese citizens were divided into two categories: rural and urban. Those who lived in urban areas were given an urban Hukou, which provided them with greater access to social services, education, and employment opportunities. On the other hand, those with a rural Hukou faced restrictions on their ability to move to urban areas and were denied access to these benefits.
The Hukou system played a crucial role in the early years of China’s economic development. It helped the government control the rapid migration of people from rural areas to cities, which could have led to social instability. However, the Hukou system also created a permanent underclass of migrant workers who were denied basic rights and faced discrimination in the job market.
Over the years, there have been several attempts to reform the Hukou system. In 2014, the government introduced a new policy that allowed migrant workers to convert their rural Hukou to an urban one if they met certain criteria, such as having a stable job and a place to live in the city. However, the reform process has been slow, and many migrant workers still face significant barriers to accessing social services and job opportunities in urban areas.
Overall, the Hukou system has played a significant role in shaping China’s social and economic landscape. While it has helped the government maintain social stability and control population movement, it has also created a permanent underclass of migrant workers who face significant barriers to social and economic mobility.
How the Hukou system categorizes Chinese citizens
The Hukou system in China categorizes citizens into two groups: rural and urban. This categorization is based on a person’s place of birth or household registration, and it determines their access to social services, education, and employment opportunities.
People with an urban Hukou have access to a range of benefits, including better healthcare, education, and social welfare services, as well as higher salaries and better job opportunities. They are also able to move freely within the country and to live in any city or town they choose.
On the other hand, those with a rural Hukou face significant restrictions on their mobility and access to social services. They are typically limited to living and working in rural areas and have fewer opportunities for education and career advancement. In addition, they often face discrimination in the job market and are paid lower wages than their urban counterparts.
The Hukou system also has a significant impact on the distribution of public resources in China. Since resources are allocated based on a person’s place of household registration, people with a rural Hukou are often excluded from the benefits of economic development and urbanization, further perpetuating the urban-rural divide.
While there have been efforts to reform the Hukou system, it remains a significant barrier to social and economic mobility for many Chinese citizens. The system continues to perpetuate social and economic inequality and restricts the movement of people within the country, particularly those with a rural Hukou.
Why did the government introduce this system?
The main reason why this system was put in place is, as we have seen earlier, to control migration and manage social stability.
Because rural areas had a greater capacity to absorb and utilize excess labor, the central government claimed that the majority of the population should be located there. Furthermore, free movement of people was viewed as risky, as it could lead to overcrowding in cities and jeopardize agricultural production.
So, with this system, the rural population was organized in a way to support the urban population both in agricultural production and workers for the state-owned companies.
Hukou reforms in China
China’s central government announced its “New National Urbanization Plan” in March 2014, proposing that by 2020, “about 100 million rural migrant laborers and other long-term residents will be granted a local urban hukou.” The government also removed restrictions of household registration in cities with a population of three million people or less.
The census of 2020 showed that the population of China is now 1.4 billion. This growth was obtained especially thanks to the abolition of the one-child policy. But even with this growth, the figures show that the population is rapidly aging and the low fertility rate doesn’t help to solve the problem.
To counteract long-term demographic trends, Chinese policymakers are attempting to increase fertility rates and increase the productivity of China’s working population. Even as its workforce declines, rising levels of educational attainment and urbanization are encouraging signals that it is accomplishing more. However, China’s government may be restricting its population from reaching its full economic potential by enforcing its rigorous hukou housing registration system.
According to census data, 64 percent of Chinese nationals currently live in cities against 50 percent in rural areas, up from 50 percent in 2010. But the unlock its full potential, China needs to deal with the “floating population” issue.
China’s floating population is defined as people who live somewhere other than where their residences are officially registered under the country’s hukou housing system, originally introduced in 1958.
Especially in big cities, there are many migrant workers that actually don’t enjoy the full benefits of living in these cities.
Access to city services such as schools and hospitals in China is based on whether or not one’s home is registered with the city. Millions of more rural migrants live on the outskirts of China’s major cities, unable to access these facilities. Loosening hukou rules could help migrants become more productive members of their new communities, allowing them to obtain loans, buy homes, and establish more long-term employment.
To try to solve this situation, China introduced a series of reforms like:
- Replacement of temporary residence permits with residence permits
- Ease of the hukou threshold in most cities
- Point-based hukou acquisition in megacities
In a notice of April 2021, the National Development and Reform Commission also demanded that cities with a permanent urban population of fewer than 3 million completely abolish household registration limitations and treat home renters and buyers equally while implementing the hukou policy.
This is undoubtedly a watershed moment in China’s hukou reform, as it signifies that it will no longer limit the free movement of individuals in the great majority of Chinese cities.
The Impact of Hukou System on Employment
Challenges faced by migrant workers due to the Hukou system
The Hukou system in China creates significant challenges for migrant workers, who are often forced to live and work in cities without access to the benefits of an urban Hukou. These challenges include limited access to social services, discrimination in the job market, and restrictions on their ability to bring their families with them.
One of the primary challenges faced by migrant workers is limited access to social services. Since the Hukou system ties social services to a person’s place of household registration, migrant workers are often excluded from access to healthcare, education, and other essential services. This lack of access can be particularly problematic for migrant workers who may face health issues or need to enroll their children in school.
Discrimination in the job market is another significant challenge faced by migrant workers. Many employers prefer to hire workers with an urban Hukou, as they are seen as more reliable and stable. As a result, migrant workers often face significant barriers to finding stable employment and may be forced to take on low-paying or temporary jobs. They are also paid lower wages than their urban counterparts, despite often working in the same jobs.
Another challenge for migrant workers is the restrictions placed on their ability to bring their families with them. Since the Hukou system ties access to social services and education to a person’s place of household registration, migrant workers who bring their families with them may face significant barriers to accessing these services. This can lead to social isolation and make it difficult for families to adapt to life in a new city.
Moreover, migrant workers also face significant challenges in terms of housing. Due to the high cost of housing in cities, many migrant workers are forced to live in cramped and often unsafe conditions. This can create health and safety hazards for workers and their families, further exacerbating their challenges.
Overall, the Hukou system creates significant challenges for migrant workers in China. These challenges restrict their access to social services and limit their ability to find stable employment and provide for their families. As China continues to urbanize and rely on migrant workers to fuel economic growth, it is essential that the government takes steps to reform the Hukou system and provide greater access to social services and job opportunities for all Chinese citizens.
How the Hukou system affects job opportunities and salary for migrant workers
The Hukou system in China significantly affects job opportunities and salary for migrant workers. Migrant workers often face discrimination in the job market, which limits their ability to find stable employment and earn a fair salary.
Employers often prefer to hire workers with an urban Hukou, as they are seen as more reliable and stable. This creates significant challenges for migrant workers, who may struggle to find stable employment and may be forced to take on low-paying or temporary jobs. In some cases, employers may also take advantage of migrant workers by paying them less than the minimum wage or by withholding wages altogether.
The Hukou system also affects the type of jobs available to migrant workers. Many jobs in China’s booming cities, particularly those in the service sector, require an urban Hukou. This leaves migrant workers with limited options for employment and often forces them into low-paying or dangerous jobs.
In addition to limited job opportunities, migrant workers also face lower salaries than their urban counterparts. Migrant workers are often paid significantly less than workers with an urban Hukou, despite often working in the same jobs. This wage disparity can make it difficult for migrant workers to support themselves and their families and can exacerbate poverty and inequality.
Moreover, the Hukou system also affects the ability of migrant workers to access social welfare benefits, including healthcare and education. Since social welfare benefits are tied to a person’s place of household registration, migrant workers may not have access to the same level of benefits as workers with an urban Hukou. This lack of access can make it more challenging for migrant workers to support themselves and their families and can exacerbate social and economic inequality.
Overall, the Hukou system in China creates significant challenges for migrant workers in terms of job opportunities and salary. Migrant workers face discrimination in the job market, limited access to social welfare benefits, and lower salaries than their urban counterparts. To address these challenges, the Chinese government must take steps to reform the Hukou system and ensure that all citizens, regardless of their place of household registration, have access to equal job opportunities and fair wages.
How does Hukou impact employers in China?
Usually, in a market where people can move without any problems, employers are not so concerned with the employee’s location. The only few problems could come from the impracticality of interviewing the candidates (but easy to solve interviewing the candidate online), relocation expenses that they could seek, or difficulties to adjust to a new work location.
Employers and applicants in China frequently face bureaucratic obstacles as a result of the hukou system, which has been criticized for stifling labor mobility and can also give headaches to recruiters to attract top talents.
But the recent reforms and help provided by companies can help to overcome these obstacles.
How can companies help?
Employees of companies are frequently assisted in obtaining an urban hukou by their employers. The capacity to obtain preferential treatment in the social welfare system is a critical component of companies’ ability to recruit top talent.
Offering this incentive allows businesses to gain negotiating leverage in contract talks and retain their more competent employees for longer periods of time than they may otherwise be able to. Employees who wanted to keep their rural hukous instead of migrating to their new urban hukous papers may be eligible for social welfare payments.
Converting a hukou is not an easy process and can be time-consuming. That is why companies have a legal team to deal with that or they use a PEO provider like us to deal with all the legal requirements.
Another way for companies to help is with talent incentives.
Municipal administrations in China now have more flexibility in determining quotas and eligibility criteria for hukou conversion.
Nonetheless, megacities maintain population control and have tight conditions for issuing a hukou.
Shanghai, Shenzhen, Beijing, Guangzhou have adopted a point-based system to vet applicants. For those applying for a Beijing hukou, variables such as employment type, property ownership, education, and innovative achievements are all considered.
Smaller cities offer preferential policies to attract talents. It is common to offer incentives, especially to fresh graduates.
As we have seen, the Hukou reform is a key component of China’s overall economic reform strategy, which aims to shift the economy’s focus from manufacturing to services and increase domestic consumption.
Reducing worker mobility constraints through hukou reform also improves access to social services and helps the country’s transitioning economy.
The system is complicated and presents both challenges and opportunities. Feel free to contact us if you need more help in relation to this and if you need to convert the hukou of your employees.