China's Peasants Suffer Under Apartheid

True Democracy and Markets Work Best When Individuals Have Rights

China operates an apartheid system that divides its citizens into separate worlds according to whether they were born in rural or urban areas. After reforms in South Africa and the collapse of the Soviet Union, few other countries have residency controls.

While world opinion rightly denounced apartheid in South Africa, few complaints were registered against the use of similar systems in communist countries. Denying people certain fundamental rights should be condemned as a matter of principle, regardless of the motivation.

There is no small irony that communists condemned the notion of division of labor created by the market. However, they imposed a division of labor in China and the former Soviet Union by creating urban centers for industrial production and controlling workers’ access to them.

China’s long-anticipated entry into the World Trade Organization contains another paradox. While accepting the principle of the free movement of goods, China denies the basic right of freedom of movement to its own citizens. Of all the vestiges of the planned economy, this represents perhaps the most grotesque relic.

Initiated by Mao in 1958, the hukou system uses registration to tighten social control. Everyone must live in a registered household. Those seeking work in urban areas must register using a household address in that city or be sent back home.

The hukou system separates people into rural and urban residents. Employment is based on place of permanent residence. Because work units provide many services, the hukou system also controls access to schools and housing. It also affects many social decisions, like marriage.

Decades of imposition of these categories have aggravated the contempt between rural and urban citizens. The larger group of peasants, who number 900 million, is discriminated against in favor of roughly 400 million urban dwellers. A fear that too much mobility will cause increasing social unrest from pockets of rising unemployment and expanding slums provides the Communist Party with allies among most urbanites.

Urban areas are enjoying rapid economic growth while many people in rural areas remain impoverished, widening the gap between rich and poor. Agricultural reforms have contributed to increases in productivity that have caused steep declines in the need for workers in rural areas. At the same time, peasants face rising tax burdens that induce them to seek jobs in urban areas.

China’s rural areas hold an estimated 170 million surplus workers. Of these, as many as 120 million are living as migrant workers in the cities. Yet their status remains insecure. Even marriage to someone from the urban elite allows only a temporary residence permit. Under these conditions, they could be expelled during periodic crackdowns against migrant workers.

There have been some improvements, with more likely to follow. As of October 1, rural residents have been allowed to change their hukou and apply for permanent residence in small cities and towns where they find legal housing and a secure source of income. Pilot schemes are underway in 20,000 towns and small cities, roughly half of China’s total.

After five years, the experiment will progress to incorporate small and medium-sized cities before larger cities are made more open. Beijing, Shanghai, and Guangzhou have loosened the household-registration requirements for professionals or property owners.

At present, about 74 percent of the population officially is registered as rural residents and is trapped in the countryside. This means that the hukou system presents a serious barrier to China’s continued economic growth and development. Besides being cruel, this system hinders economic integration by partially separating rural from urban markets.

Irrationalities Abound

If China wishes to move toward a market economy it is essential that there be worker mobility. As in South Africa under its apartheid regime, irrationalities abound; businesses are limited in whom they may hire and may have to take less-productive workers with permits over more-competent skilled professionals without.

It is good news that ongoing reforms to the hukou system will allow some of the hundreds of millions of Chinese peasants to improve their standard of living. However, this is merely the beginning of a much larger force for change.

As China moves toward modernizing its political system, its leaders will discover that true democracy and markets work best when rights and freedoms are recognized in individuals as individuals. Apartheid exists when rights are based on group identity, favoring one group at the expense of another.

Mao Zedong depended on the peasants to secure his victory. He rewarded them by making them second-class citizens. Karl Marx once exhorted industrial workers to throw off their chains. Now is the time for China to remove the shackles from its peasantry and release these people to seek their own destiny.

Christopher Lingle is global strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.