Hukou Reform: An Urgent Requirement in China

Abstract

China’s bounding exports and rising trade surpluses suggest the high level Chinese manufacturing is at. China also has made brisk advances technologically. In the last two decades, China has emerged as the fastest growing exporter of manufactured goods, and has exerted a downward pressure on prices, in relation to the exports of other goods and services. China definitely is the unquestionable center for the manufacture of consumer goods. Factories located in China make 70 per cent of the world’s toys, three fifths of its bicycles, half of its shoes and one third of its luggage. Investment levels are high in China because of elements like cheap labour, quality infrastructure and the huge size of the market. Because of the high levels of investment in the industry along with the tractability of the market and the growth generated by the industrial sector, half of the Chinese GDP is accounted for by the industrial sector. China’s cost advantage is increasingly attached to high productivity, economies of scale, supporting industries and advanced manufacturing technologies. Migrant labourers are the support base for ensuring high productivity, economies of scale, and advancing manufacturing technologies. However, after the financial crisis, more jobs were lost in China than in any other country. More than 20 million Chinese peasant workers were forced to return home from coastal factories due to reduced orders from overseas in late 2008, and in early 2009. During the recession, minimum wages were frozen, and 6,70,000 labour intensive factories shut down in the coastal cities of Guangzhou, Dongguan and Shenzhen. The slowdown hit the industrialised eastern zone more directly but even farmers in the western areas had to bear the brunt of adversity, with millions of unemployed workers returning from Chinese cities. According to a survey undertaken by the government in 15 provinces of China, 20 million workers which equals 15 per cent of the total migrant labour pool is now unemployed. However, after two years of the onset of the financial crisis, what is being witnessed is a labour shortage in several provinces. From an oversupply of labour which resulted in millions losing their jobs because of reduced demands for exports, what has emerged is a shortage of labour. This reflects the way in which the labour market has become segmented. A surplus of labour in the country side coexists with shortages on the coast. Thus coastal factories have to offer higher wages to migrants to ensure lucrative pull factors for migration. The Guangdong province in China which is one of the leaders driving economic growth in China is considering further raising the rate of minimum wages early in 2011 to help ease the labour shortage. Despite being one of the economic powerhouses in China the rate of minimum wages in Guangdong is not one of the highest in China. The minimum monthly salary is currently 1030 Yuan (USD 154), lower than that of Shanghai and other prosperous provinces and regions. As a result of the low wages, many migrant workers are choosing to leave Guangdong for the Yangtze River Delta and other areas. Migrant workers increasingly choose to stay in their places of origin where they earn a bit lower, but also spend less on living costs. This paper attempts to look at the various programmes being undertaken in certain provinces of China like Guangdong, Shanghai and Chengdu for example, in order to meet the challenges facing economic development and labour supply. Migration is the most important aspect of labour supply in China. However, the hukou or the Household Responsibility System (HRS) has caused several impediments to the movement of labour. Despite the fact that attempts have been made to loosen these strict controls, the exclusion towards migrant labour continues to exist. In order to understand the interplay of migration, urbanisation and development, the theory of mobility transition theory propounded by Wilbur Zelinsky is looked at to understand the levels of urbanisation of a developing society, leading to outline the level of urbanisation China currently stands at, and to further understand the impediments to attaining higher levels of urbanisation in China. The sources used to undertake research for this work are newspapers from China and secondary sources. China needs to move up the level of modernisation and urbanisation in order to maintain the sustainability of its economic growth miracle. This work is thus an attempt to explore and understand the way forward for the Chinese economy in the near future.