(Adds detail in para 3)
By John Ruwitch and Hui Li
BEIJING, March 6 China's new leaders are
planning a system of national residence permits to replace the
household registration or 'hukou' regime, a government source
said, a vital reform that will boost its urbanisation campaign
and drive consumption-led growth.
The hukou system, which dates to 1958, has split China's 1.3
billion people along urban-rural lines, preventing many of the
roughly 800 million Chinese who are registered as rural
residents from settling in cities and enjoying basic urban
welfare and services.
Critics have called for changes for years and a government
researcher told Reuters a "unified national residence permit
system" would be adopted as policy as part of a 10-year
urbanisation plan to be published after the current annual
session of parliament.
Benefits and entitlement under the new system would be
"basically equal", he said, although the changes would be eased
in slowly. He did not say how long it would take.
"The trend is to dilute the urban-rural household
registration divide", said the researcher, who was briefed on
the details but declined to be identified because the plan has
not yet been made public.
Previous administrations have experimented with reform on
the fringes of hukou for years but have not delivered on calls
to overhaul the system, which affords different welfare and
civic services to urban and rural citizens.
In a speech to parliament on Tuesday that laid out the
blueprint of the new leaders, outgoing Premier Wen Jiabao said
hukou reforms should be accelerated to drive an urbanisation
effort that he said would underpin economic development.
Zhang Ping, head of the National Development and Reform
Commission, China's main economic planning agency, said on
Wednesday that guidelines for the urbanisation plan would be
launched in the first half of 2013.
"Urbanisation is the biggest potential force driving China's
domestic demand in the years ahead," Zhang told reporters.
China plans to spend 40 trillion yuan ($6.4 trillion) to
bring 400 million people to cities over the next decade as the
new leadership of president-in-waiting Xi Jinping and
premier-designate Li Keqiang seeks to turn China into a wealthy
world power with economic growth generated by affluent
Wen said consumption was the key to unlocking the full
potential of domestic demand in the economy and would reduce
excess, inefficiency and inequality. It would also help deliver
growth of 7.5 percent in 2013 - a level China barely beat in
2012 when growth eased to 7.8 percent, its slowest pace in 13
Hukou reform can also unlock the funds of about 200 million
rural residents who work in cities as migrants and spend much of
their incomes on benefits like medical services and education
for their children, which are given free to urban dwellers.
If policymakers successfully harness this demographic shift,
China will enjoy continued economic strength, analysts say. If
not, it could lead to social and political instability.
"If they don't get it right, instead of growing a middle
class, they are going to grow a huge underclass in the city, and
that's very scary," said Kam Wing Chan, a population expert at
the University of Washington.
"Without granting urban hukou to rural urban migrants it is
very hard to turn them into the middle class. They will always
be second class," he said.
One of the main reasons the reform has been delayed is
money. Local city governments have dragged their feet on plans
to give migrants equal welfare, saying they lack the fiscal
means to foot the bill.
"If the central government is serious they've got to talk
about how to finance this," said Tom Miller, an analyst with GK
Dragonomics and author of the recently published book "China's
The state researcher who declined to be identified said the
urbanisation plan would broadly put the burden of funding on
central and local governments, enterprises that employ migrants
and individuals. He did not discuss specifics.
"In doing so we can ensure that some people can transition
from being rural to urban citizens and ensure basic public
services for this segment of people," he said.
Another key reform needed in the urbanisation plan would be
new rural land management rules, although the researcher said
there would be few details on this.
Peasants now do not have the freedom to sell their land at
market prices, which has exacerbated China's wide rich-poor gap
and made many reluctant to fully abandon their rural plots.
Officials like Chen Xiwen, head of the Central Committee's
rural working group, have cautioned against urbanisation, saying
it could lead to a shrinking of farms as land is converted to
Migrant workers have for years lamented inequalities in the
hukou system, like the lack of local medical coverage or equal
access to higher education.
"In the countryside we generally want to change our rural
hukou for city hukous," said Wang Baiqiang, an 18-year-old who
left a village in Henan province last month for a job in an
Adidas factory in the coastal province of Jiangsu, 14 hours away
"It's just better if you have a city hukou (if you live in a
city)," he said.
(Editing by Raju Gopalakrishnan)