IN RESPONSE TO PROPERTY CRISIS, CHINA STUDIES FUNDAMENTAL OVERHAUL / THE WALL STREET JOURNAL

In Response to Property Crisis, China Studies Fundamental Overhaul

Beijing takes steps to ease segregation of urban and rural populations

By Jacky Wong

Guangzhou is joining the list of Chinese cities offering an enticement for home buyers. Photo: Qilai Shen/Bloomberg

In China’s sluggish property market, the latest sales pitch isn’t marble countertops, but residency papers.

In a bid to support the real-estate market, more than a dozen Chinese cities have rolled out plans that would give something akin to permanent residency to home buyers. 

The southern economic hub of Guangzhou recently joined the list, making it the first of China’s biggest, tier-one cities—which also include Beijing, Shanghai and Shenzhen—to do so.

Under China’s hukou, or household registration system, migrants to cities have traditionally had limited access to social benefits including healthcare and education. 

So access to a big-city hukou has great appeal.

This change alone isn’t likely to revive the overall property market. 

For one, the housing market in the biggest cities has been relatively more resilient—a lot of the overbuilding happened in the smaller cities, leaving a pile of unsold apartments. 

Generally, consumption sentiment remains weak as the economy is facing deflationary pressure.

But apart from selling apartments, the policies offer a window into one of China’s fundamental economic constraints: a household registration system that has long segregated rural and urban populations. 

Around two-thirds of people in China live in urban areas, but less than half of the population had an urban hukou as of 2023. 

That means around 250 million urban residents don’t enjoy full social benefits in the place where they live. 

Many are laborers without the means to buy a home in a big city, but urban residents without registration benefits also include successful entrepreneurs and homeowners.

This has profound economic implications. 

Those migrant residents don’t feel financially secure enough to spend freely, so the system has effectively depressed household consumption. 

Many often leave family behind in the countryside while they work in cities.

The government in recent months laid out a five-year urbanization plan to overhaul the hukou system, signaling a recognition of this systemic drag. 

But meaningful change won’t come cheap. 

Absorbing millions of rural migrants into urban social infrastructure requires increased spending on healthcare and other welfare programs.

This helps explain why a hukou overhaul, which has been on the wish lists of academics and think tanks for decades, has been delayed for so long. 

But the property downturn has now become a more pressing fiscal issue for local governments. 

While using registration benefits as a lure for housing purchases suddenly makes a lot more sense, the central government in Beijing would still probably need to increase its spending on social infrastructure if it wants fundamental change of the system.

There have been high hopes that Beijing will launch a large-scale stimulus to boost the economy. 

So far, the government has announced plans to alleviate the debt burden of local governments, but hopes for Western-style direct consumer handouts appear unrealistic.

Instead, more-promising, long-term policies—such as easing household registration restrictions and enhancing social-welfare systems—could potentially unlock significant consumer spending potential.

Investors should pay close attention: If the hukou overhaul succeeds, expands to more cities and is paired with funding for better social benefits for rural migrants, it would be one of the most positive economic-policy initiatives out of Beijing in years.