Overview The Dualistic System Urbanization Rural-Urban Migration Consequences of Urban-Rural Divide Conclusions

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2 Overview The Dualistic System Urbanization Rural-Urban Migration Consequences of Urban-Rural Divide Conclusions

3 Even for a developing economy, difference between urban/rural society very pronounced Administrative barriers set in place during 1950s as part of command economy Rural and urban areas have different governance structures, systems of property rights and effectively citizenship Differences maintained through strict controls on mobility into 1990s Mass rural-urban migration has begun, but gap still exists

4 (i) Origins of Rural-Urban Divide: - Roots in socialist era with every citizen connected through workplace to state - Institutions implemented in different ways: (a) Urban residents organized by state-owned work units (danwei) with two effects: - formal hierarchy under state control - system of uniform social benefits and entitlements built up, urban residents relatively privileged

5 (b) Rural institutions quite different: - private property eliminated through collectivization, access to land being through collective - no standards or entitlements applying to all rural residents supported social services out of own resources - level of benefits and public goods lower than in cities, and rural residents much poorer

6 Different systems were tools to carry out socialist Big-Push strategy: - rural system used to extract low cost food and fiber from farmers - work units got government investment and urban workers seen as vanguard of socialism - system was an implicit tax on farmers, driving down already low-returns forced to sell grain at artificially low prices

7 For system to work, farmers tied to land: - social mobility initially high, but with famine ( ), urban dwellers spared worst, peasants had license to starve - 6 million residents pushed into returning to villages - hukou system used to restrict migration - without urban residence permit, farmers could not work in cities, and rural-urban migration virtually stopped from mid-1960s - rigid dualism relaxed after rural reforms (1980s), but possession of urban hukou still a divide

8 (ii) Urban Economic System: - Through 1990s, urban life defined by benefits of hukou and membership of danwei: Job security; low-price food grains; health care; pension and other benefits on retirement; primary and middle-school education; low-cost housing - Distorted urban price system, with permanent employment, but low job mobility between work units - Each unit integrated into national administrative hierarchy with managers appointed by the Party

9 - All urban property incorporated into single system of state ownership, land nationalized in 1950s, and businesses state-owned - Authority to manage state firms delegated to local governments, even if nominal ownership remained with national government - Land owned by state, with evolution of system of rights for use over 50 years being bought and sold; transferable leaseholds evolved in 1990s - Urban land now an important source of wealth for SOEs and those controlling land conversion

10 (iii) Rural Economic System: - No attempt made to integrate rural areas into hierarchical system of state ownership - Collectives low power organizations and membership did not convey entitlements to government services - Rural property, including land, never incorporated into national state ownership in principle owned by collectives - With rural reforms, land worked by households, but formal ownership remains with collectives

11 - Complete system of private property rights of rural land does not exist, generating side effects: (a) Collectives redistribute land periodically usually to accommodate population growth (b) Little landlessness form of social insurance (c) Lack of secure land tenure affects incentives, permanent migration requires surrender of land, encouraging families to leave some members on land, while others migrate outside of agriculture

12 - Rural property rights complex, locally negotiated no national land registry where rights are recorded - Land more valuable with development, but as collectively owned, village heads and township officials negotiate prices - Despite 50 year leases, land often sold out from underneath farmers key source of social conflict law on rural land contracts has not prevented such disputes continuing

13 (iv) Rural-Urban Systems and Transition: - Rural system more loosely organized, and easier to change but with end of agricultural collectives, supply of public goods collapsed - In cities, attempts to strip out social services from SOEs, but not removed from danwei until rudimentary social programs became available - While social safety net has gaps in urban China, some provision of health care and social security - Urban residents favored in housing work units sold housing on favorable terms by 2005, 80% owned by households, and urban property markets have grown

14 (v) Adminsitrative Barriers: - System of household registration remains barrier covers both location and status (urban vs. rural) latter very difficult to change, e.g., rural women cannot change status of children via marriage - Urban hukou system has been liberalized, but still exists, and options fewer for those wanting to migrate to large cities compared to towns/small cities - Easier though to migrate and work in urban areas without a formal hukou and national government more sympathetic to plight of migrant workers - Reform a slow process, especially with downsizing of SOEs, and still extensive discrimination against migrants

15 Key part of development process, and China is currently in period of rapid urbanization 47% of population now urban Urbanization rate within normal range for a developing country, but determined by government policies as much as economic forces 1950s to 1978, China de-urbanized, with no parallels elsewhere, but by 2005 urbanization rate similar to developing country average By 2020, 60% of population expected to inhabit urban areas, and million rural residents will join urban workforce

16 Figure 1 Urban Share of Total Population 50% 45% 40% 35% Living in Urban Areas 30% 25% 20% 15% 10% "Non-Agricultural" = Urban Residence Permit Holders 5% 0% Source: Naughton, 2010

17 After early peak of urbanization, urban economy tripled in size, but migration strictly controlled, including forced out-migration 17 million youth during Cultural Revolution Most extreme controls ended in 1978, but planners did not accept need to allow largest cities to grow until 1990s Migration to large cities has resumed, cities sprawl into rural areas, and new urban settlements have evolved in rural areas Significant urban transformations in Pearl River and Yangtze river deltas urbanized countryside

18 Rural-urban migration has grown rapidly since 1990s, but migrants face discrimination and limitations on their integration into urban society Remain on fringes, living on city outskirts in sub-standard housing, and working long hours Through migration, income-earning potential increases, contributing both to economy they are working in as well as through remittances to home villages

19 Chinese use term liudong renkou to refer to floating population, i.e., individuals living for at least 6 months in a place other than where household is registered In 2000 census, 144 million were floating, of which, 65 million were local within county, and 79 million were long-distance and long-term Long-distance floating population made up of 36 million within province/cross-county migrants and 42 million inter-provincial migrants Migrants especially attracted to southern coastal regions, e.g., Guangdong had 21 million floating population in 2000 census

20 Million Figure 2 The Long-distance "Floating Population" in China's Census Interprovincial Within Province Source: Naughton, 2007

21 Migration in China increasingly similar to that in other developing countries Pull factors such as higher incomes are key in China, push factors weaker due to there being little landlessness Rural residents most likely to migrate if young and male, and probability of migration highest for those aged but female participation in migration has increased Male migrants typically work in construction, factories and businesses of urban areas, females in export-oriented, light industries in southeastern coastal areas

22 During period of strict controls, urban-rural income increased, despite wage freeze on urban residents Result of demographic effects: almost universal female labor-force participation in urban areas; reduction in dependent children due to birth-control policies At same time rural incomes were suppressed through controls on mobility and low government procurement prices for grains

23 By 1978, urban-rural divide was wide per capita income of an urban resident was 2.6 times higher than a rural resident In early years of reform, gap closed as farmer s incomes rose, but began to widen after 1984 Impact of urban growth on gap temporarily slowed in mid-1990s due to spike in agricultural prices Urban-rural divide is now significantly wider than it was at start of economic reforms

24 Figure 3 Ratio of Urban to Rural Household Income Source: Naughton, 2010

25 Due to China s entry into WTO, shift in relative prices against agriculture has placed further downward pressure on rural incomes Chinese policymakers now more focused on rural income issue, e.g., 2005 agriculture tax abolished Policies designed to protect rural incomes not to discourage rural-urban migration After 2003, first time PRC policy has begun to systematically correct for urban bias

26 Under socialist planning, policy affected mobility of labor as well as compensation in urban and rural areas Resulted in an extensive misallocation of labor and excessive inequality rural workers earned below their marginal product Dismantling of barriers to mobility slow, but speeded up after mid-1990s Barriers still exist, and are fundamental in functioning of Chinese economy, and determining lives of Chinese households

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