Asia

Commentary: Is China finally getting serious about hukou reform?

OBSTACLES TO REFORM

Local obstacles range from the relatively trite to more fundamental issues with China’s political economy. In China, as elsewhere, residents of larger cities are reluctant to share their relative (if not absolute) prosperity. Timing matters too, with a slowing economy and youth unemployment of more than 46 per cent on some metrics.

Then there is the cost to consider. Modelling done in 2014 suggests that it would cost 1.5 per cent of China’s gross domestic product each year over a 15-year period to grant urban hukou status to China’s migrant workers. This figure would now be much higher. While the economic benefits would probably handsomely offset these costs nationally, the overall process might be somewhat uneven.

Who pays is the more pressing question. Despite only collecting 50 per cent of revenue, local governments foot the bill for about 85 per cent of public services. The increasingly precarious nature of local government finances casts severe doubt on the willingness of most localities to expand social expenditure.     

As only around 10 per cent of people in China (and very few urban migrants) pay income tax, hukou conversion would likely cause local government revenue to suffer even if overall GDP grows. The corollary is that sustainable hukou reform requires deeper and even more politically contested fiscal and taxation reforms.

Ideological barriers might also be at play. A variant of the hukou system has been a feature of Chinese governance for thousands of years. Similar systems have been jettisoned elsewhere in East Asia – including in Taiwan – but typically by governments with decidedly more democratic and market-orientated principles.

This situation is far from static. With China’s population already falling, the political and economic calculus of hukou reform could conceivably change as demographic decline bites. At least in the short term, whether China can implement deeper hukou reform will serve as a litmus test as to whether Beijing’s commitment to common prosperity is real, or more rhetorical.

Henry Storey is a political risk analyst and was formerly an editor at Foreign Brief and Young Australians in International Affairs. This commentary first appeared on Lowy Institute’s blog, The Interpreter.

Source: CNA

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