China’s census shows its ‘hukou’ system is a barrier to future economic gains

But even as China’s population ticked up last year, China’s census figures still reveal the country’s rapidly aging population and the host of economic challenges that come with it.

To counteract the long-term demographic shifts, Chinese policy planners are aiming to boost fertility rates and make China’s working population more productive. Rising levels of educational attainment and urbanization are hopeful signs that its workforce is doing more, even as it shrinks in size. But by enforcing its strict hukou housing registration system, China’s government may be preventing its population from unleashing its full economic potential.

China’s low fertility rate

In 2020, 12 million babies were born in China, the country’s fewest births in 60 years.

The low figure may be, in part, tied to economic uncertainties amid the pandemic. But it also underscores a concern that’s haunted China’s policy planners for years; that China’s population is rapidly aging and not enough babies are being born to financially support and care for a growing base of seniors.

The aging population threatens to stunt China’s growth since China will no longer be able to count on the sheer size of its population to continue to drive its economic gains.

“It’s clear that the government is increasingly very, very concerned about the future in regard to very low fertility,” says Peter McDonald, a professor of demography at the University of Melbourne. “Already, some of [China’s] social security systems are under pressure.” Low fertility rates will compound the problem; a smaller number of workers will be asked to support an increasingly large group of nonworking seniors.

McDonald says that Chinese policy planners are focused squarely on finding new solutions to boost fertility rates, since relaxing China’s one-child policy to a two-child policy in 2016 didn’t provide the baby bump the government hoped for.

He said that one major proposal to incentivize more births includes expanding access to childcare. Such measures, he says, may have only a limited effect on fertility rates.

Rising education levels

Besides encouraging more births, China can counteract the economic effects of slowing population growth by getting more output from its citizens. China’s rising education rates are an encouraging sign that it can pull off the feat.

“China’s economy will overtake the U.S.’s, barring major disruption, in the next 10 to 15 years,” says Bert Hofman, director of the East Asian Institute at the National University of Singapore. “And the workers that are going to do that are already born, and most of them [are] already in school.”

In the newly released census, China reported that 218.36 million people had a university-level education or higher, up from the 119.63 million people who held a university degree in 2010. Its university-educated population nearly doubled in relative terms; 15,476 people per 100,000 citizens now, compared with 8,930 per 100,000 in 2010.

In that same time frame, China’s illiteracy rate also dropped from 4.08% to 2.67%.

“This is good news in terms of education and human capital,” says Stuart Gietel-Basten, a demographer at the Hong Kong University of Science and Technology.

But Gietel-Basten cautions that higher levels of education won’t automatically translate into a more productive workforce. He says that the government needs to support its university graduates by ensuring their degrees match the needs of the labor market. Programs to boost financial literacy among graduates will also help ensure that China can lock in the gains of educating more of its citizens, he notes. A more financially literate population will help ensure that more people will be less dependent on the state and can benefit from private pension systems and other long-term investments, he adds.

“The government is going to need to work to really translate its improvement in human capital into productivity,” he says.

Urbanization

Another way to increase productivity is through urbanization, says Gietel-Basten. Efficient, white-collar industries like tech companies are largely concentrated in cities, giving urban workers an advantage over rural counterparts in contributing to China’s economy and increasing their social mobility. That shift toward cities is already underway.

The census data showed that 64% of Chinese citizens now live in cities versus rural areas, compared with the 50% who lived in cities in 2010. “It’s really incredible” that China has continued to urbanize in such a short amount of time, says Gietel-Basten.

But unlocking the full potential of its urban population will require China to address what’s known as its “floating population.”

China defines its floating population as those who reside in places other than where their houses are officially registered per China’s hukou housing system, originally introduced in the 1950s as a means to limit internal migration and organize China’s government-planned economy.

Practically speaking, this population is composed of both white-collar workers who relocate to cities as well as poorer migrant workers who move from rural areas to large cities for work. Hofman estimates there is a roughly 50-50 split between the two groups, and that rural migrants don’t enjoy the full benefits of living in those cities.

Under China’s hukou system, access to city services like schools and hospitals depends on whether one’s household is registered with the city. Millions of rural migrants live on the edges of China’s largest cities without access to these services. Loosening hukou restrictions could help migrants become more productive members in these communities, allowing them to access loans, purchase houses, and build more sustainable careers in the places they move to, Hofman says.

McDonald says that the census could serve as a wake-up call to abolish the whole hukou system altogether, since providing full public resources to everyone living in cities also could incentivize more births by reuniting families and easing the burden of childrearing.

A significant share of Chinese children live in rural areas while their parents work in cities because it is often easier for children to go to public schools in their home villages, McDonald says.

“This kind of enforced separation of parents from the children through this system is not conducive to having another child; having a second child, for example,” he says. “China’s government should value children more than they have been doing.”