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Household Registration (Hukou) in China: A Constraint or an Opportunity for Innovation?

The inside pages of a Chinese hukou booklet Ⓒ Bxxiaolin / Public domain / Wikimedia Commons

China's hukou system was set in place in 1958 when the National People's Congress approved the "Regulations on Household Registration in the People's Republic of China". The law established that every citizen would receive a hukou location (户口所在地, hukou suozaidi), a kind of internal passport modelled on the Soviet propiska (Losavio, 2020) (Meina, Pengfei, and Hui, 2020) differentiated between an "agricultural" or rural or a "non-agricultural" or urban one. The first one provides access to farmland benefits, and the second one states benefits such as housing, jobs, and food. It defines where a citizen belongs. Most of the time, people inherit from their parents (Cindy Fan, 2008).

At the end of the 1970s, with Deng Xiaoping’s Four Modernizations (四个现代化, sì gè xiàn dài huà) and the creation of the Special Economic Zones, the hukou started to be reformed, giving more opportunity for rural citizens to work in coastal cities. This creates big waves of migration. The first big opening happened in 1984-1985: "self-supplied food grain" (zili kouliang) was granted to peasants working in towns. Regulations to obtain "temporary residence permits" (zanzhuzheng) were issued in the following years. Moreover, the identity card was sufficient as an identification tool (before, only the hukou could be considered valid) (Cindy Fan, 2008).

The Hukou System: A Constraint to Social and Cultural Capital

Innovation, entrepreneurship, commercialization of new technologies, and knowledge spillovers play a significant role in regional economic development. (Qian, Stough, and Yuan, 2015). In particular, some key determinants of innovations are R&D in firms and universities, human capital universities per se, and local amenities, which according to Kotkin, are a factor of attraction for industries and talents. Also, urbanisation rate affects innovations (ibidem). Moreover, social capital, defined as a "nonphysical resource that affects physical productivity and, in turn, labour-market outcomes", is fundamental for deciding to start a business (Fan, Hall, and Wall, 2009). Personal contacts, networks, and kinship ties represent an investment which could create job opportunities and increase earnings. The lack of these elements could affect the employment status.

The impact of rural migrants in cities is highly debated. For some scholars, migrant work is seen as a stimulus to the urban economy and services; according to others, migrants increase corruption and decrease wages in cities since their labour costs are lower than the urban ones (Cindy Fan, 2008). As a consequence, people may suffer from social exclusion. According to a study (Chen and Hu, 2021), the social identities disadvantages, mainly discrimination, created by the hukou system affect the distribution of earnings between rural and urban workers, having a spillover also on entrepreneurship engagement opportunities. Indeed, the lower expected labour return in the market prevents starting their own business. Data shows that migrants have a personal income lower than 6.2 % of the urban citizens, while migrants’ entrepreneurs’ discrimination based on the hukou systems for a migrant who is 2.9 points more in the urban environment, above or for those who have a middle level of education, young, married and renters (ibidem).

The human capital theory indeed stresses that human resource investment, such as education or other training courses, create different outcomes in labour markets:

Investments in human resources provide a return, including a higher individual wage rate. The relationship between workers' earnings and education is typically elaborated in a human capital earning equation. Individual earnings are dependent on factors: years of formal schooling, years of experience, and other individual characteristics, which may affect productivity and hence earnings (Fan, Hall, and Wall, 2009).

Other scholars stressed the issue of regulating the education of migrants’ children throughout the migrant children’s schools (流动儿童学习,liudong ertong xuexiao) or integrating them into the urban education system. Indeed, it appears always more necessary to adopt a clear plan. Otherwise, the marginality will be reproduced in future generations (Cindy Fan, 2008). In September 2018, a vicissitude that happened in an elite elementary school in Suzhou became viral on WeChat and Weibo, creating debate all over the country. On the will of wealthy parents, the school was divided into two areas by a fence between the 800 rural migrants’ students (without local hukou) and the 400 wealthy families’ students. The latter was scared that the presence of migrant students could have endangered their children's academic success because of their different starting points (Ponzini, 2018). Indeed, in China, the economic capital alone is not sufficient to make a person rich. However, cultural capital is considered the most important of the personal qualities (素质, sushi) and is at the origin of economic, symbolic, and social capital (Bourdieu, 2011; Ponzini, 2018). The main problem is that the lower classes and potential talented students risk remaining excluded and impede social mobility. Consequently, China will have less human capital in universities and R&D.

Hukou System Regulation Case Studies: The Chities of Zhuhai, Dalian, and Shenzhen, and the Province of Jiangxi

In the last decades, migrant integration policies are strictly correlated with the leading local city's governor aspirations and ambitions of development and innovation. Zhuhai is a third-tier city located in the Guangdong province, in the Pearl River Delta, near the four critical areas of the region such as Guangzhou, Shenzhen, Macao, and Hong Kong. It was one of the first instituted in August 1980 as a Special Economic Zone (ZES). Still today, it registers one of the highest percentages of migration. It has adopted a stratified and selective approach regulation of hukou in a highly competitive system, selecting the more educated, talented young migrants (Losavio, 2020). In 2008, the "Circular No. 60, Regulations on the Management of hukou migration in Zhuhai" approved the "investment-hukou policy” (touzi ruhu). The criteria adopted become stricter to reach the city's ambition to become a key innovation leader in technological development and innovations. The eligibility criteria to attract “talents” and control the migration flows must be:

Young (under the age of 45) and educated (with above college degree) employees of private companies (production and Sci-Tech), who had already paid social security for three years. Even the companies whose employees wanted to have local residency had to comply with several specific criteria […] in terms of taxation and investment (Losavio, 2020).

We found similar examples with different outcomes in the Chinese northeast city of Dalian. In the Economic and Technological Development Zones coastal city-regions of the country, where the most innovative technology industries are based, workers' recruitment benefit from the flexible rules of the hukou system. The main goal is to perfect and secure workers' skills. Unlike Zhuhai, a Bachelor's Degree is sufficient to apply for the local hukou (instead, in Shanghai, the Degree must have been obtained from the first 211 most valuable universities recognized by the National Educational Bureau) for two years of experience in the software industry sector are necessary. Consequently, migrants employed in the software and biotechnology industries are more likely to access a local hukou, contrary to ones employed in the digital industry (Fan, Hall, and Wall, 2009).

The city of Shenzhen represents the third case study. In the past years, the city has transformed itself from a labour-intensive to a knowledge and technology-driven one, with which GDP surpassed the Hong Kong one. Also, in this case, the main factors which lead to the current situation identify the role of government in “building a local innovation ecosystem, strong industrial R&D development, the inflow of human capital, the pro-entrepreneurial social environment. […] The crucial role of universities in the innovation system has been increasingly recognized" (Yuyang, Jin, 2019). Despite numerous efforts and initiatives by the University of Shenzhen to produce domestic graduates during the 1980s, in the last years of the 1990s, the city started a series of initiatives to increase the supply of human capital. As a consequence, the number of migrants, most skilled and well-educated, doubled from 1995 (3.5 million) to 2015 (7.8 million) (ibidem).