The purpose of this paper is to examine the effects of the migration policy on the rural-urban income disparity in China after the reform. Migration policy is particularly important in China because of its contradicting effects on the income gap between rural and urban areas. The Chinese government has partially deregulated the migration policy after the reform; while it restricts rural peasants' becoming urban residents, it allowed them to engage in non-agricultural occupation in urban areas. This partial deregulation of the migration policy has had two different effects on the rural-urban income disparity. On one hand, since the labor market is not perfect, urban wages are maintained higher than those in rural areas. On the other hand, partial deregulation of migration has alleviated income disparity through the remittance from urban to rural areas; as will be discussed in this paper, because of the "partial" nature of deregulation, migrants tend to send substantial amount of remittance to their home villages constantly.
In section 2, the current situation of the rural-urban income disparity in China is described. Section 3 introduces several possible causes of the disparity which have been pointed out so far, and also provides the reason why the migration policy is particularly important among them. Following the history of the Chinese migration policy and characteristics of migrants in section 4, the effects of the migration policy on income disparity is finally examined in section 5. In conclusion are provided the summary of the discussion and perspectives for the future migration policy and rural-urban income disparity.
China's State Information
Center (SIC) expects that the gap between urban and rural incomes to triple
over the next eight years. 2
According to its latest analysis, the World Bank estimates that the "rural-urban
disparities accounted for more than one-third of inequality in 1995 and
about 60 per cent of the increase in inequality between 1984 and 1995"
(1997:15). It also argues that the Chinese rural-urban income gap
is atypically high among developing countries. In most developing
countries, urban incomes are twice of rural incomes at most, while, in
China, rural incomes were only 40% of urban incomes in 1995.
Oi also presents a similar figure for the urban-rural income ratio
(1993:129). Table 1 shows the annual change of per capita income
of rural and urban households and their income gap during 1978-1990.
According to the table, the income gap once decreased in the early 1980's,
but started to increase again in 1984.
TABLE 1. Per Capita Income of
Rural and Urban Households
| Year | Rural Income Per Capita (yuan) | Urban Income Per Capita (yuan) | Urban/Rural Income Ratio | Rural Income as % of Urban |
| 1978 | 134 | 316 | 2.36 | 42 |
| 1979 | 160 | 377 | 2.36 | 42 |
| 1980 | 191 | 439 | 2.30 | 44 |
| 1981 | 223 | 500 | 2.24 | 45 |
| 1982 | 270 | 535 | 1.98 | 50 |
| 1983 | 310 | 573 | 1.85 | 54 |
| 1984 | 355 | 660 | 1.86 | 54 |
| 1985 | 398 | 749 | 1.88 | 53 |
| 1986 | 424 | 910 | 2.15 | 47 |
| 1987 | 463 | 1021 | 2.19 | 46 |
| 1988 | 545 | 1192 | 2.19 | 46 |
| 1989 | 602 | 1388 | 2.31 | 43 |
| 1990 | 630 | 1523 | 2.42 | 41 |
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Lin, Cai, and Li (1996)
analyze that rural residents' incomes have significantly increased after
the reforms, but those of urban residents have increased further more,
which widened the gap.
Johnson (1994, 1996) supports
the argument by Lin, Cai, and Li. He also assesses that the reforms
have contributed the economic growth in rural areas but also widened the
rural-urban income gap. According to Johnson, decollectivization
improved the incentives of Chinese farmers and increased opportunities
to engage in non-farm occupation in rural areas. However, the central government
transferred rural income to urban areas through urban-biased policies such
as subsidies and fewer direct taxes and intensive capital (including
human capital) investment in urban areas.
Oi (1993) shares a similar perspective with Johnson's. He considers that the central government continues those policies in fear that sudden suspension of the current urban-favoring policies would invoke urban residents' dissatisfaction and destabilize the regime.
The World Bank (1997) argues
that the restricted labor movement, due to the government's intention to
control the pace of immigration into urban cities, is one reason for widening
rural-urban disparity.
Among them, the restricted
labor movement is particularly important in considering the rural-urban
income disparity in China. The restricted labor movement hinders the optimal
labor resource allocation and maintains the rural-urban wage (thus, income)
difference large. What is interesting is that, however, the Chinese migration
policy also has an effect of decreasing the rural-urban income gap.
The Chinese migration policy has been "partially" deregulated after the
reforms. Because of the "partial" nature of the deregulation, migrants
tend to send substantial amount of remittance constantly to their home.
Then, why was the migration policy deregulated "partially"? Why do
migrants send substantial amount of remittance when migration is "partially"
deregulated?
TABLE 2. Migration Rates in China
and the World
| Years | Number of Years | Net Migration (thousand) | Rural Population of Base Year (ten thousand) | Migration Rate (%) | Reference: World (%) |
| 1949-59 | 11 | 11,957.5 | 48,402 | 0.22 | 1.54(1950-60) |
| 1960-69 | 10 | 7,044.8 | 53,134 | 0.13 | 2.16(1960-70) |
| 1970-79 | 10 | 12,134.8 | 68,568 | 0.18 | 2.24(1970-80) |
As one of the economic reforms since 1978, the government abolished the commune system and introduced the household production responsibility system (HPRS) in 1980. Under the new system, peasant households have gained control on every aspects of farming operation; they can now decide how to allocate the labor force and do not have to report their working hours to communes. In addition, the HPRS provided peasants incentives to produce more efficiently, allowing them to sell or keep surplus products. As a consequence, large labor surplus emerged in the agricultural sector (Wu, 1994; Tuan and Webb, 1993; Chang, 1993; Islam and Hehui, 1994). The government started to loosen migration policy, reflecting the social change. For example, rural people are now allowed to move to small towns since 1984 (Zhao, Unpublished manuscript). It was considered preferable for the nation's economic growth if the surplus labor worked in the non-agricultural sector.
However, the government did not deregulate its migration policy completely. Under the slogan of "Leave the land, but not the village," it allowed rural people to engage in non-agricultural occupation, but did not allow to change their hukou to urban areas and abandon farming completely. One of the reasons why the government maintained control on migration was its pro-urban industrialization policy. The government has been emphasizing the growth of urban areas, expecting them to lead the country's economy. In order for rapid urban industrialization, the government needs to provide various subsidies for urban resident' education, housing, and medical care (Johnson, 1994; 1996). It is impossible to offer such an expensive service to many people, therefore, the government needs to restrict the number of urban residents.
Also, the government considers that free migration will cause a rapid change of the rural society and hinder its stability. Chang argues that "[t]he Chinese state, at least for the moment, has strenuously tried to maintain the dual (agrarian and proletarian) nature of the rural population ..... (because)..... too rapid an expansion of non-agricultural population ..... may create uncontrollable social problems in rural towns and villages" (1993:238).
Thus, the migration policy
was deregulated partially after the reform. Rural people are now allowed
to leave their land and engage in non-agricultural occupation, but not
to enter urban cities as official residents.
(2) Characteristics of migrants
Because of the "partial" deregulation of migration policy, Chinese migrants have two peculiar characteristics. First, migrants are likely to be "circulating" or "temporal". Since migrants are not allowed to live in urban cities "officially", they work in those cities temporarily without becoming official residents. According to the 1995 household survey in Sichuan and Anhui Provinces, conducted by the Ministry of Agriculture, Research Center for the Rural Economy (RCRE), Du (unpublished manuscript) mentions that, among all the sample households with migrants, only 0.6% have moved permanently. The average period of one migration was 8.6 months for Sichuan Provinces, and 7.2 month for Anhui Province in 1995. These workers return to their home villages after working as a migrants for a while. Du points out that Chinese migrants maintain strong ties with their home villages. "The link to the land alone is enough guarantee the migrant workers will not undertake reckless moves" (ibid).
Secondly, there are few "families" among Chinese migrants. They leave their families at home, since they are unable to receive social services as "urban" residents such as education and are forced to live under inferior conditions. According to Zhao's calculation (unpublished manuscript), a survey by the Ministry of Labor shows that "two-thirds of married migrant workers were separated form their spouses, while 81% of the workers with children did not bring their children along." Du (unpublished manuscript) also reports that, according to the 1995 survey by RCRE, migrating couples or families accounted for only 6.6% of all the sample households with migrants.
Thus, Chinese migrants after the reform maintained relatively strong ties with their home villages in these two senses. As a consequence, remittance tends to be large and constant. Details are discussed in the following section.
Before moving on, it would be useful to mention about the number of migrants in China. The number of those migrants who seek for lucrative jobs in urban cities has increased after the reforms started. It is difficult to estimate the number of those migrants, as rural people can not become "official" residents, migrants tend to be "floating" or "blind", but most scholars and researchers estimate the number to be around 50 million (World Bank, 1997; Zhao, unpublished paper; Mallee, unpublished paper; Du, unpublished paper). This counts for 5% of the whole population. As the table 3 shows, the ratio of the migrants to the total rural laborers exceeds 20% in some counties. Compared with the world migration rates (Table 2.), it is clear that these numbers are extremely high.
TABLE 3. Comparison of Rural Labor
Migration Ratio: the National Average, Sichuan, Anhui and Four Counties*
| National Average | Sichuan Province | Renshou County | Quxian County | Anhui Province | Yingshang County | Zongyang County | |
| Total Rural Labor (ten thousand) | 44654 | 5159.2 | 67.2 | 57.1 | 2542.8 | 64.9 | 42.1 |
| Total Migrant Labor (ten thousand) | 3724.1 | 799.2 | 16.1 | 18.1 | 320.0 | 18.0 | 11.0 |
| Migrants to Other Provinces (ten thousand) | 1935.5 | 526.9 | 9.5 | 16.0 | 18.0 | 14.5 | 7.7 |
| Share of Migrant Labor to Total Labor (%) | 8.3 | 15.5 | 24.0 | 31.7 | 12.6 | 27.7 | 26.1 |
| Share of Interprovincial Migrants to Total Labor (%) | 4.3 | 10.2 | 14.1 | 28.0 | 7.1 | 22.3 | 18.3 |
(1) Rural-urban wage difference
When a labor market is not
complete, restricted labor movements hinder the optimal labor resource
allocation and maintains a gap between rural and urban wages. In China,
since the government has been putting emphasis on urban industrialization,
urban wages has been higher than rural ones. If the labor market
were perfect, rural workers would flow into urban areas, seeking for higher
wages. Then, the excess of the labor supply would lower the urban
wage rate, while reduced labor supply in rural labor market would increase
the rural wage. This would continue until the rural and urban wages
become the same. Thus, perfect labor mobility would decrease the
income disparity. However, the government restricts the labor movement
and hinders wage rates to be adjusted according to the labor demand and
supply.
Indeed, although the labor
movement is restricted, there are lots of "floating" migrants in
China now. The number of those migrants are estimated to be 50 million.
Taking the number into account, labor resource allocation may appear to
be virtually working despite the migration policy. However, even
when rural workers migrate to urban cities, they engage in occupation of
low wages which urban workers do not take. Because of their low status
as "non-official" residents, they do not have many choices. For example,
according to a survey on the migrants in Sichuan and Anhui Provinces, more
than 90% of migrant workers are employed as nonprofessional workers at
a low wage level (World Bank, 1997). Thus, wage difference does not disappear
easily. Actually, one of the reasons why rural enterprises has grown so
fast after the reforms is that rural wages were low enough to make rural
enterprises extremely profitable (Chunlai, Findlay, Watson, and Xiaohe
1994:17).
Thus, migration policy has
hindered closing rural-urban income gap through maintaining wage difference.
(2) Remittance as a means of income redistribution
Due to the partial deregulation of migration policy, migrants tend to be "circulating" and include "less families". This has contributed to alleviating the income gap between urban and rural areas.
As has been mentioned, many migrants leave their spouses or children in their home village. Thus, the migrants' ties to their home villages are maintained tight. For example, Secondi mentions that a lot of remittance is sent from adult children to their parents who take care of their children in rural China (1997:491). He also mentions that, introducing Wu's argument (1994), "..... in China, where rural-urban migration of selected family members has risen dramatically since the beginning of economic reforms in the late 1970's", "[a] common arrangement ..... is for young males to migrate to nearby cities or towns in search of employment. Money is then remitted by the migrants to their wives and dependents" (1997:491).
Beneficial effect of migration on urban-rural income disparities is diluted when families join to the migrants (World Bank 1997:57). This tendency is confirmed world-widely. Russell reports that remittances diminish when dependents join the migrants, and suggests that spouses are important determination of remittance in case of many other countries, too (1986:685). Lipton enhances the argument from a different perspective in his general study on migration in poor countries. He argues that migration does not solve disparities between urban and rural sectors when migrants are young male. (1980:7)
Remittance level is high in China, and rural households depend much of their income on transfers from migrants. For example, the Word Bank (1997) reports that a typical migrant from Sichuan Province who earns 5000 yuan a year sends 2000 yuan to his or her home village. (The average per capita income of the province is 1000 yuan.) Households in Sichuan and Anhui Province depends 20% of household income (and 50% of cash income) on remittance. Du (unpublished manuscript) also reports that farmers of 12 villages in Sichuan and Anhui Province relied 52 to 75% of their income on remittances from migrants. Mallee (unpublished manuscript) provides an interesting view point to show how migration is important for rural people's living standards. He argues that rural households allocate some laborers to non-agricultural sector, trying to make more money even without cultivating parts of their land. Rural people migrate not just because they are "surplus" in the agricultural sector, but are willing to leave the land for better income. Song (unpublished manuscript) also confirms that migration is a lucrative opportunity for households without access to local non-agriculture employment.
Indeed, a perfect labor market may cancel the income redistribution effect of remittance and may worsen rural-urban income gap in a short term. When migrants become "urban" residents, their incomes are calculated as "urban" incomes in statistics. Also, when migration from urban to rural areas become possible without serious disadvantages, family migrants will increase. The relationship between the migrants and their home villages are weakened, and remittance from urban to rural areas will also decrease. However, once the equal wage level is attained after a while in the labor market, the rural-urban income disparity will diminish in a long run.
The key is how long it will take to reach the equilibrium wage level when the government opens up the labor market. Many developing countries have rural-urban income gaps, although there is no restriction on labor movements. As these countries show, wage equilibrium is not attained in a labor market very soon. Especially, it will take long in China, a big country with a vast territory and huge population. Transportation cost for those who live in remote areas and cultural differences among Chinese people may slow down the process of labor market integration.
The government cares about various social confusions during the transition period. As Chang (1993) argues, its prior concern is "social stability". Rapid increase of non-agricultural population will harm the stability of rural societies. Massive migration from rural to urban areas will degrade the current rapid growth of urban cities, lower the urban people's living standards, and accumulate their frustration.
However, the cost of maintaining the control on migration cannot be neglected. Continuing disparity will promote rural people's dissatisfaction. Especially, due to "partial" deregulation, rural people are now aware of the difference from urban residents. There may have been less dissatisfaction shortly after the reforms started. There were few labor movements, and people were satisfied with their improved living standards comparing with those before the reforms. However, ten years after the reforms started, people's demands are increasing. Moreover, income disparity started to widen since 1986 (See Table 1.). As rural people become aware of these facts, the social stability in China will gradually decrease.
Also, growing rural enterprises will prevent the society from losing its stability even if the government deregulate the migration policy completely. The number of private enterprises is rapidly increasing since 1984, when the government announced its support for rural industry. In 1978, rural enterprises counted 1.52 million with 28.27 million employees. In 1984, the number dramatically increased to 6.07 million. Rural enterprises continued to grow since then. In 1992, they produced 1769 billion yuan, 32% of the national economy (Chunlai, Findlay, Watson, and Xiaohe, 1994:7-11). These rural enterprises will function as "cushions" against the shocks in opening up the labor market. Rural people will migrate to adjacent middle size cities with many rural enterprises rather than flow into metropolitan cities.
Taking these facts into consideration, completely deregulating migration does not seem to be an unrealistic alternative. Opening up the labor market is a way to decrease the rural-urban income disparity in China.
2. China News Digest 2/8/98.
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