A homeless father living on the streets of Shanghai holding his son close to keep him warm on a cold winter day. (Photo by Keith Tsuji, iStock) 

For the first time in China’s long history, more than half of its population lives in cities and towns. This rapid urbanization has led many to believe that China’s middle class will grow to unprecedented numbers, becoming an enormous consuming class that will drive the global economic engine for years to come.

But according to geographer Kam Wing Chan of the University of Washington, that assessment is over-optimistic. His analysis of Chinese population data shows that many rural workers move to cities only to join the ranks of the urban poor, and they have few prospects of improving their lot.

The reason: China’s complicated and poorly understood hukou household registration system. Formally established in 1958, the system controls Chinese citizens’ place of residence and once served to enforce a rural-urban divide—keeping peasants in the countryside to grow food and forbidding them to work in the cities.

Since 1979, peasants have been allowed to move to cities to work, but they maintain their rural hukou, with no access to the more generous benefits available to those with urban hukou, such as social security, unemployment insurance, and free public education for their children. (They maintain access to very limited rural social security, however, and their children can attend school in the countryside.) “It’s a two-tier citizenship system,” Chan says. “It’s really quite amazing, because about 150 to 200 million people are affected by this. This is a gigantic phenomenon.”

Without an urban hukou, most of the employment open to rural-born workers is factory jobs and menial labor. The system, Chan says, conveniently allowed China to create a massive, exploitable labor force during its industrialization period in the ’80s and ’90s. “China became the world’s factory,” he says. “They needed this supercheap labor to compete in the global market.”

Now, with the hukou system still firmly in place, Chan argues that Chinese urbanization will not result in the creation of a huge middle class but rather in a huge underclass. Without significant reforms in the system, he predicts that China will become more like Latin America, with a large gap between rich and poor and many people living in urban poverty.

Migrants do make more money working in the cities than they did in the countryside, “but that extra income isn’t enough to overcome the barriers to upward social mobility that they face,” says Dorothy Solinger, a political scientist at the University of California, Irvine, who studies China’s urban poor. For instance, many migrants can’t afford the fees to send their children to good schools. “It’s sometimes possible to break through, but you have to have a lot of money to do it,” she says.

Chan also warns that continuing this two-tier citizenship system could become a potential source of social unrest. As migrants begin to recognize their rights and demand change, they could become a destabilizing force in China. This would most likely happen among factory workers who are congregating in one place and have the same set of grievances, Solinger says. Her studies have shown that urban poor who don’t work in large factories are more isolated from each other and are unlikely to speak out.

The Chinese government has enacted some reforms of the hukou system, but will have to accelerate the pace of that change to maintain the country’s social stability and economic growth. At the current speed of reform, the demise of the hukou system would probably take 50 years, if not more, Chan says, so for now, “If you think that China’s urbanization can save the world, you have to think twice.”

Kam Wing Chan, “Crossing the 50 Percent Population Rubicon: Can China Urbanize to Prosperity?” Eurasian Geography and Economics 53, 2012.

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