A Chinese City Seeks to Turn Migrants Into Urbanites; Tongling’s Recipe for Growth: Giving Rural Workers Urban Benefits

A Chinese City Seeks to Turn Migrants Into Urbanites

Tongling’s Recipe for Growth: Giving Rural Workers Urban Benefits


Nov. 8, 2013 7:01 p.m. ET

TONGLING, China—Tongling, a copper-mining center since the Ming dynasty, is running low on ore. The Yangtze River city wants to turn itself into a manufacturing center, but it lacks a critical ingredient: a steady supply of factory workers. So it is doing what many places in China are unwilling to do. It is inviting migrants and their families to settle, giving them the same rights to education, health care and housing as locals, and even letting émigrés from China’s villages retain their exemption from China’s notorious one-child policy, so they can have a second child.The approach shows signs of working. Tongling’s population is growing, while overall Anhui province’s is falling, and the local economy is getting a small boost. “Farmers are leaving their land and coming to work in the city’s factories,” says Chen Lei, a manager at the Tongling subsidiary of Hailiang Group, which makes copper tubes and plans to more than double its workforce of 280 in the next three years. “We’re seeing that now.”

Since 2010, this dusty city of 750,000 in eastern China has made reform of the city’s residency-permit system a centerpiece of its economic strategy.

All Chinese have what’s known as ahukou—a document that entitles them to live in a certain place, usually their hometown, and divides them into rural or urban residents. Social benefits derive from hukou status and vary widely. World Bank researchers estimate that China’s richest provinces spend eight times as much, per person, overall as the poorest ones.

“China is like a lot of small kingdoms with different levels of welfare,” says He Fan, a senior researcher at the Chinese Academy of Social Sciences. “People try to move to better places. Hukous keep them out.”

Chinese economists say that a Communist Party conference that starts Saturday and is scheduled to release an economic blueprint for the next decade will discuss making China’s hukou system more equitable. In June, China’s National Development and Reform Commission—the old State Planning ministry—released a report saying China should relax hukou controls, starting in smaller cities like Tongling, but only slowly make such changes in larger ones.

More-sweeping change is opposed by major cities, whose social-welfare benefits are greater than in smaller cities like Tonglingand thus would face greater outlays for migrant families, say researchers involved in putting together the party economic plan.

Looking to replace the hukou system altogether, the Development Research Center, an influential Chinese government think tank, has urged the party leadership to create a national package of social benefits, so Chinese living standards won’t depend so much on differences in localities.

Under the current system, a Beijing hukou gives students a leg up in getting into the capital’s universities, which are among the best in China, and medical insurance that can help pay for treatment at some of the country’s better hospitals. A rural hukou gives farmers rights to the land they farm—usually enough for a dependable, though subsistence living—and much more modest medical care than is available in cities.

The hukou system dates back to 1958 when the Communist Party wanted to make sure enough people were tilling the fields. The policy helped China avoid some of the problems of Latin America and Africa, where big cities are ringed with shantytowns. But by limiting the ability of Chinese to move their families to the cities where they work, the hukou system also made migrants wary of adopting freer-spending urban lifestyles, a trend running counter to Chinese leaders’ broader goals of shifting to a consumer-led economy.

A report by the World Bank and Development Research Center estimates that shifting 10% of China’s workforce out of the agricultural sector could boost China’s GDP by 6.4%, with higher gains in the less-developed western and central parts of China.

For decades Anhui province, where Tongling is located, has sent migrants to Shanghai, Guangzhou and other coastal cities in search of work in China’s burgeoning export businesses. Migrant labor powered China’s rise to become the world’s second largest economy but at a heavy personal cost for migrants. Many of them left their kids in their home villages to be raised by grandparents because they couldn’t get local hukous, making it extraordinarily difficult for them to put their children in local public schools.

From 2008 to 2012, as Anhui province’s population fell 2.4%, Tongling’s edged up 0.4%, according to government statistics. Industrial profits rose 6% between 2010 and 2012 in the city, much slower than during the boom years before the global financial crisis, but still in the plus column while the city makes its economic transformation.

In 2005, Tongling eliminated the education surcharge of around 750 yuan ($124) per semester for each migrant child in Tongling public schools, says Zhong Heping, deputy director of Tongling’s urban and rural unification office. Over the past three years, the city also made migrants eligible for public housing and the same medical insurance as locals.

Zhou Xiaocui, a 49-year-old clothing store owner, from Anqing, about 55 miles from Tongling, says the city’s open door to migrants convinced her to settle there. She says she is impressed that she doesn’t have to pay extra for her 13-year-old son to attend the local junior high school. “I heard good things about Tongling,” she says. “That’s why we moved here.”

Wu Jiaxiang, a Tongling native who now lives in Beijing and writes books about Chinese politics, says the core of Tongling’s reform is “equal rights for all.”

Tongling has been known for reform since 1991, when the young mayor, Wang Yang, published an article, “Wake Up, Tongling,” urging the town to embrace market economics and be open-minded about the changes sweeping China. It caught the attention of then-paramount leader Deng Xiaoping, Chinese media accounts say, which put Mr. Wang on a fast track to higher office.

He burnished his reformist reputation as party chief of coastal Guandong province, pressing local businesses to boost their global competitiveness, and is now a vice premier overseeing economic issues. Locals say he can be counted on to help Tongling.

The city’s current mayor, Hou Ximin, was a Beijing housing official before he was dispatched to Tongling as a way to round out his resume for higher office, says Mr. Wu, the Tongling political writer.

Tongling’s move to equalize benefits came after other attempts flopped. Over the past decade, the city required rural residents to give up their land in exchange for an urban hukou and a city apartment. While the city set the compensation at levels higher than elsewhere, many former farmers ran through the money and wound up unemployed. These “lost land” farmers now congregate around housing projects playing cards and looking for tiny plots of undeveloped to plant beans.

City officials and academics studied the massive efforts of Chongqing, with a population of 30 million, to turn 10 million rural residents into urban ones, so they could become a workforce for the factories the city was wooing from China’s coast. But Chongqing requires farmers to give up their land within three years in exchange for urban benefits and many balk, figuring that their land acted as a kind of insurance policy. Even if they were laid off from the factory, they could come home and farm, say farmers in rural Chongqing districts.

Tongling puts less demand on migrants. They can keep their land and still get urban benefits. That is what Ms. Zhou, the clothing store owner decided to do. “I definitely don’t want to give up my land back at home,” she says. “I think every farmer feels the same way.”

For its part, Tongling is experimenting with new ways to convince rural residents and migrants to become urban workers. The city is teaming with a trust company to offer farmers a chance to pool their lands so the fields can be farmed more efficiently and raise higher value crops. Lease payments and dividends, Tongling planners say, could put more money in farmers’ bank accounts and encourage them to leave their farms and move to cities where wages are higher.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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