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China Eases Internal Passport System in Urbanization Push

China will stop classifying its people as urban or rural residents as it relaxes an internal-passport system that limits migrant workers’ access to cheap social services when they move to the city.

Under the changes to the household registration system, or “hukou,” China’s 1.4 billion people will be classified simply as residents, the State Council said in a statement yesterday. Rural people won’t have to give up rights to countryside land and collective undertakings to get city permits, it said.

The shift reflects Premier Li Keqiang’s broader push to raise China’s urban population, which stood at 54 percent in 2013, as the government seeks to spur domestic demand and wean the economy’s dependence on infrastructure investment. The hukou system has denied rural residents inexpensive access to services such as health care and schooling in cities.

The government statement “is positive for speeding up China’s urbanization and maintaining healthy growth of the real estate sector,” Lu Ting, Bank of America’s head of Greater China economics in Hong Kong, said in a note yesterday. “The next breakthrough in China’s hukou and urbanization will be giving farmers full property rights to their land,” he said.

Migrant workers are seen as driving property demand in cities as China faces a real-estate slump that threatens economic growth. The economy is projected to grow this year at the slowest pace in 24 years.

Urbanization Target

China wants 60 percent of its population living in urban areas by 2020. The government will overhaul education, health care, employment and housing to be consistent with the change, according to the statement.

“Getting rid of the administrative difference is the first step to prepare for the changes in the fiscal and social-security systems,” said Yao Wei, China economist at Societe Generale SA in Paris. “This is not an ending. It is a beginning.”

The State Council made clear that some residency restrictions will remain in place. China will “strictly” control the population of mega-cities and ease registration limits for medium-sized cities in an “orderly” way, according to the statement.

Equal treatment for rural and urban residents will pose funding challenges to local governments, according to Hua Changchun, a Hong Kong-based economist at Nomura Holdings Inc.

“Local governments cannot do this without financial help from the central government,” Hua said. “It’s a positive step to remove this discriminatory administrative division, but whether public services can follow up remains a question.”

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net Joshua Fellman, Gail DeGeorge

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