China vows freer movement for workers by relaxing 'hukou' system

China's State Council has pledged to relax the country's household registration system. Photo / 123RF

China outlined plans late Wednesday to promote the freer movement of labor as authorities look to cushion slowing growth in the world's second-biggest economy.

The policy statement issued by the State Council, China's Cabinet, included a pledge to relax the country's household registration system, which has been criticized as discriminatory and a deterrent to urbanisation. Authorities will also make it easier to move between employers and improve incentive systems aimed at encouraging workers to go to less developed regions.

These are the latest in a slew of policy announcements Beijing has made in the final weeks of 2019 after President Xi Jinping led a December meeting of top officials to plan out the coming year's economic priorities. The readout from that conclave signalled both an aversion to broad-based stimulus and an emphasis on spurring "new drivers of growth" through reform.

In addition to labor, the State Council has in the past week also unveiled steps to improve the efficiency of state-owned enterprises, stabilise employment, and bolster the role of private-sector businesses in the economy. Premier Li Keqiang also pledged last week to give foreign investors greater access to the country's service sectors including finance and health care.

Xi, in an article published December 15 in Qiushi magazine, also touted the importance of so-called city clusters as part of China's urbanisation strategy. In it, he describe the need for policies that promote the fair and reasonable movement of the factors of production - capital, land, enterprise and labor - so that they can aggregate effectively.

China's household registration system has been cited by a number of economists as one hurdle to such movement. It ties the ability of Chinese citizens to access public services to the city where their household is registered. The difficulty of changing that registration, commonly knows as a person's hukou, has left many migrants unable to fully benefit from public services for education and health.

The steps outlined by the State Council would eliminate the hukou system in cities with less than 3 million residents and relax it in cities with populations of 3-5 million. For cities home to more than 5 million, such as Beijing and Shanghai, the household registration system will be simplified, it said, without giving details. These steps mirror policies released by the National Development and Reform Commission in April.

This policy change would effectively eliminate the hukou hurdle for most of China. Out of almost 300 prefecture-level cities, only 27 have populations exceeding 3 million, according to I-City Media, which analyzed data from the Ministry of Housing and Urban-Rural Development.

Markets reacted positively to the news. An index tracking shares of property developers listed in Shanghai rose by 2.9 per cent, the most since September 4, while China's benchmark CSI 300 index gained 0.9 per cent on Thursday.

"It's the first time the central government has announced clear-cut detailed hukou reform," said Yan Yuejin, lead analyst at E-House China Enterprise Holdings's research institute. "Loosening hukou may spark home-buying demand in some tier-3 and tier-4 cities."