China’s unique system of registering households by splitting its population into rural versus urban dwellers has long outlived its usefulness. But a much-needed policy revamp misses some key details of how reforms would be paid for, potentially hobbling its effectiveness.
New guidelines announced on 22 May give migrant labourers access to public services in the cities where they work, regardless of residency status, in a continuation of a decade-long effort to gradually dismantle entrenched regional disparities. The household registration system, known as hukou, has roots in imperial bureaucracy and ties eligibility for entitlements to a person’s official hometown.
This is important because the process of converting villagers into urban residents by providing similar retirement and medical benefits will be expensive. To be successful, China Inc must help shoulder the financial burden along with regional and national governments.
Without a basic social safety net such as healthcare and education, the transient workforce of 358 million people has powered China’s economic rise but not been able to fully benefit from the prosperity they helped create. Being barred from putting down roots in the most desirable cities has limited their social mobility.
Getting companies on board to pay their employees’ social security contributions may be the most straightforward part of the effort. E-commerce giant JD.com vowed to provide full-time riders with benefits when it began food delivery services in February 2025. Larger rivals Meituan and Alibaba followed soon after.
It’s no accident that Beijing is pushing for change now. Integrating migrant workers into the urban economy is one of the most direct ways to boost domestic consumption. At around 40% of China’s GDP, household spending in the country is about 10 percentage points lower than Japan, another famously frugal nation.
Chinese rural migrants have long tended to save at double the rate compared to their urban peers and much more than neighbours who never left their villages. If they give up their precautionary savings and spend at the same rate as city residents, the country could unlock consumption equivalent to 13% of today’s household spending.
This would be a meaningful contribution towards rebalancing the economy away from export-led growth.
Practicalities aside, it was important for Beijing to signal that basic services should not be tied to one’s place of birth. Over the decades, hukou had effectively created a population of second-class citizens disrespected by people in the very cities they were helping to build. It also meant families had to live apart.
Because youth from rural families were barred from metropolitan school systems, many were separated from their parents, creating two generations of so-called ‘left-behind’ children.
The plan issued by China’s cabinet included no details on funding measures. It only briefly touched on the responsibility of provincial governments to prepare financial support and increase land quotas to expanding cities.
The cost of turning an average worker from the countryside into a city dweller is about 133,000 yuan ($20,000) when equivalent pension and healthcare contributions are factored and after deducting personal obligations to fund those future social security services.
Extending that to the entire migrant population would amount to roughly 48 trillion yuan—equivalent to about a third of GDP.
However, not everyone’s status would need to be converted. Some people may opt to return to their hometowns instead of settling down in urban areas. Also, given this is such a large group of people, the entire undertaking could take years. But it is important to begin work on the plan as soon as possible because the gap will only widen with time.
The announcement puts the onus on provincial governments to step up, but this is a tough ask. The prolonged economic slowdown has strained the coffers of regional authorities traditionally reliant on land sales, which slumped following the real estate sector collapse five years ago.
Beijing may need to intervene more directly with central funding if it is serious about reform. Liu Shijin, a former vice president of a think-tank attached to the State Council, has previously proposed raising 10 trillion yuan via special bonds over two years to improve healthcare, housing and education for migrants and their families.
The latest measures will take time to implement. Beijing and companies should pick up the slack if regional governments struggle to find the resources to move forward. Migrant workers have been the muscle behind China’s ascension to a superpower. They deserve better. ©Bloomberg
The author is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and management in the region.