China May Finally Let Its People Move More Freely（Excerpts）

• Author: Dexter Roberts

Hundreds of millions of Chinese live in China’s biggest cities as second-class citizens, with no access to social benefits and limited ties to the locales in which they work. Their situation leads to unhappiness, lower consumption, and lost productivity.

The culprit: China’s household registration—or hukou—system. The hukou, a small red passbook, contains key information on every family, including marriages, divorces, births, and deaths, as well as the city or village to which each person belongs. What comes attached to the hukou are benefits including health care, a pension, and free education for one’s children. These benefits are only available if a Chinese citizen lives where he or she is registered. Not having a hukou for where one lives makes it more difficult to get a driver’s license, buy a house, or purchase a car.

As China strives for a more balanced economy, top policy-makers are realizing that the hukou system is a liability. Late last month, China’s cabinet announced plans to make it easier for rural migrants to obtain a city hukou. On March 5, Premier Wen Jiabao told the National People’s Congress that migrant workers will become “permanent urban residents in an orderly manner” as China eases restrictions. “The hukou system is morally indefensible in today’s China. It’s also due for an overhaul because the system impedes economic growth and urbanization,” wrote Hu Shuli, editor-in-chief of China’s reformist Caixin Century Magazine, on March 8. This doesn’t mean the hukou system will be swiftly dismantled: Authorities fear that would trigger a nationwide flood of migrants into the biggest cities and raise the prospect of mass unrest. Providing social welfare benefits to new urban residents will also be costly.

Although Chinese family registries have been around for centuries, today’s hukou system began in 1958 as a version of the Soviet Union’s internal passport regime. The hukou forced farmers to stay put and produce cheap food to sustain industrialization. With the economic opening, it evolved to allow massive migration from the country to urban enterprises and export factories. The qualifier: A worker’s residency did not transfer to the city. Neither did his right to health benefits and free education. The hukou system helps explain an economic anomaly; private consumption’s contribution to gross domestic product dropped from 46 percent in 2000 to 33 percent in 2010. That’s the reverse of what economists would expect with an...