CHINA'S CASTE SYSTEM: GOVERNMENT MOVES SLOWLY TO

C O N F I D E N T I A L BEIJING 007573

SIPDIS

SIPDIS

C O R R E C T E D C O P Y (SECTION INFORMAITON)

E.O. 12958: DECL: 12/21/2032
TAGS: PHUM PGOV SOCI CH
SUBJECT: CHINA'S CASTE SYSTEM: GOVERNMENT MOVES SLOWLY TO
REDUCE INEQUALITIES OF HOUSEHOLD REGISTRY
REF: A. OSC CPP20071120968198


B. BEIJING 2459

C. 06 BEIJING 22842

D. CHENGDU 292

E. GUANGZHOU 1287

F. CHENGDU 129

G. 06 CHENGDU 1265

Classified By: Deputy Political Section Chief Ben Moeling.
Reasons 1.4 (b) and (d).

Summary
--------------


1. (C) China's leaders, several contacts tell us, are
increasingly concerned by the social inequalities
created by China's household registration system
("hukou"),a legacy of the Mao era that prevents
migrants from enjoying many of the social services
available to native urban dwellers. China's State
Council is reportedly at work on a long-anticipated
new law to reform the hukou system, but our contacts
predict the government will stick with a slow-and-
steady approach to change. There were some modest
advances in 2007: China Southern Airlines for the
first time allowed rural migrants to apply for flight
attendant positions and Beijing has announced the
elimination of some discriminatory regulations. At
least a dozen provinces have declared that they will
eliminate the legal distinction between rural and
urban hukou. However, in most cities in China,
obtaining city hukou still requires the purchase of an
apartment, something far beyond the means of most
migrants. Despite these and other obstacles, our
contacts are generally optimistic that gradual reform
will, over the course of a decade or more, cause hukou
to fade in significance. End summary.

Consensus on Hukou Reform
--------------


2. (C) China's leaders, according to numerous
contacts, are increasingly concerned about the
bifurcation of urban society into two distinct groups
made up of official city residents (i.e. those with
official household registration in cities) on the one
hand and migrants, many of whom live and work for
years in cities but enjoy few of the benefits afforded
to natives, on the other. In a November 20 speech,
Zhou Yongkang, China's former Minister of Public
Security who was recently promoted to the Politburo
Standing Committee, urged the Chinese Government to
provide better services for migrant workers and do
more to protect them from discrimination (ref A).
According to numerous media reports, reform of the
household registration system, popularly referred to
as "hukou" in Mandarin, will likely be on the agenda
of the National People's Congress five-year
legislative term that will begin next March. Beijing
University sociologist Ma Rong (protect) told PolOff
there is a consensus within China's government that
the "hukou" system must be reformed, but officials
fear sudden relaxations would cause a collapse in
urban social services. To address this, central and
local authorities are adopting a gradualist approach
that will, over the course of a decade or more,
decouple social welfare from the household registry
system.

Social Immobility
--------------


3. (C) China adopted the household registry system in

1958. Families were granted either a rural (nong) or
urban (fei nong) "hukou" booklet, which lists all
members of the family and the family's official
address. According to Zhang Zhanxin (protect),an
expert on the household registry system at the
Institute of Population and Labor Economics at the
Chinese Academy of Social Sciences (CASS),the system
served the Communist Party's desire to maintain a
large rural population (to boost agricultural
production) and avoid migration to cities (which would
have increased employment pressures and resulted in
shanty towns). Under the system as it existed into
the 1980s, Chinese could only access government
services, including food rations, in the areas were
they had household registry. Moving, or even travel,
without official permission was extremely difficult.

The Current System: "Negative Welfare"
--------------


4. (C) Today, the hukou system is governed by a
complex patchwork of national and local regulations.
Chinese citizens are now free to move and work where
they please, and the government estimates
(conservatively) that 150 million migrant workers now
live in China's cities. Hukou, however, continues to
have an enormous impact on a person's access to social
services, especially subsidized housing and public
education. During a recent meeting with PolOff, Qin
Hui (protect),an expert on rural issues at Tsinghua
University, used the term "negative welfare" to
describe China's current system of distributing social
services based on hukou. While in most countries
welfare helps to decrease income disparity, Qin
argued, in China social welfare actually exacerbates
inequality because relatively well off city residents
receive more benefits than holders of rural hukou.
For example, the 12 million holders of Beijing hukou
(who have among the highest per capita income in
China) are entitled to an array of services such as:

--guaranteed minimum unemployment income of RMB 330
(USD 45) per month;

--the ability to purchase subsidized apartments;

--free public education for their children through 9th
grade;

--preferential treatment for their children in the
university entrance exam (Note: Beijing is allocated a
disproportionately high number of entrance slots,
allowing Beijing students to get into top schools with
lower scores than students from other areas of
China.); and,

--free flu shots for those over 60.


5. (C) The five million additional people who live in
Beijing, but who do not have Beijing hukou, are
entitled to none of these benefits. Similar
disparities between locals and migrants exist in most
large cities. (Note: Beijing, in theory, grants
migrant children equal access to public schools but in
reality migrant parents must pay high "special" fees.
Many instead opt to enroll their children in
unlicensed private schools for migrants. (Ref C))
While many cities have programs to allow migrant
workers to participate in some public benefit programs
through their employers (e.g. pensions),migrants
often opt out because these plans are not portable,
meaning they lose any benefits they accumulate if they
decide to return home or move to a new area. Zhang
told Poloff insuring the portability of work-related
benefits is an important step towards bridging the
social benefits gap between migrants and registered
urban residents.

The Gradualist Approach
--------------


6. (C) One of China's most outspoken proponents of
hukou reform is Public Security University Professor
Wang Taiyuan. In an August interview with the mass-
circulation Xinjing Bao (The Beijing News),Wang
predicted it would take China 10 years to eliminate
the inequalities associated with the household
registry system. Household registry reform, Wang has
said, involves gradually de-linking social benefits
from a person's hukou booklet. Zhang Zhanxin of CASS,
told PolOff the hukou system will always exist, but
eventually it will become merely a registration/census
tool and Chinese will someday be able to move their
hukou at will.


7. (U) According to numerous press reports, the MPS in
early 2007 submitted a document to the State Council
outlining recommended changes to the hukou system.
The State Council will likely incorporate these
recommendations into the new Household Registry Law it
is reportedly drafting. Details of the
recommendations have not been made public but,
according to a November 22 report in the Guangzhou-
based newspaper Xinkuai Bao (New Express Daily),the
recommendations seem to embrace an incremental
approach. The paper, citing sources inside the MPS,
reported that the recommendations include establishing


eliminating restrictions on the ability of urban
residents to bring their migrant spouses and elderly
parents under their hukou and to grant urban hukou to
anyone with a "permanent legal residence" in a city.

Some Progress in 2007
--------------


8. (SBU) Even as the government continues to work on
the draft Household Registry Law, provincial and local
authorities are taking slow, measured steps to reduce
the significance of hukou in Chinese society. Some
notable examples include:

--Lifting arbitrary employment restrictions: In
September, China Southern Airlines for the first time
allowed applicants with rural household registry to
apply for jobs as flight attendants. Previously such
jobs were restricted to those with urban hukou.

--Ending disparity in wrongful death compensation: A
Beijing intermediate court ruled in October that the
family of Tao Hongquan, a migrant who lived in Beijing
for over a decade before being killed in a 2006
traffic accident, was entitled to compensation based
on the standards applied to official Beijing
residents. The decision overturned a lower court
ruling that Tao should be considered a rural resident
for purposes of calculating damages. Tao's family was
thus entitled to RMB 170,000 (USD 23,000) in
compensation rather than just RMB 70,000 (USD 9,400).

--Unifying urban and rural hukou documents: In
October, Yunnan Province became the latest to announce
it would eliminate the legal distinction between rural
and urban hukou and give all residents a uniform
provincial hukou document (ref D). A dozen other
provinces previously announced similar changes (ref
B). Such policies do not actually make it easier for
farmers to change their hukou to a city address (which
generally requires the purchase of a home),but Zhang
told PolOff the elimination of "rural hukou" has
symbolic importance and should be viewed as the
beginning, not the end, of reform efforts.

"From Second Class to Third"
--------------


9. (C) While more and more provinces, most notably
Zhejiang, are allowing some migrants to move
permanently to cities and enjoy the same benefits as
native residents, such programs typically have
education, skills and/or income and home purchase
requirements. Qin Hui noted these schemes primarily
benefit city-to-city migrants as only a small fraction
of rural migrants can afford to purchase property in
cities. Wang Taiyuan, in an interview in the December
10 edition of Zhongguo Xinwen Zhoukan (China
Newsweek),similarly criticized these programs as
creating a new divide in the migrant population,
between those with enough education and money to take
advantage of these local reforms and a new "third
class" of migrants who still have no hope of gaining
equal treatment.


10. (U) Even modest, localized hukou reforms often run
into problems. In perhaps the best known example, the
city of Zhengzhou in Henan Province, lifted hukou
restrictions in 2001 only to reinstate them in 2004
after newly-arrived migrant children overwhelmed the
school system. In September this year, the government
of Ningbo, Zhejiang Province, stopped its program of
giving local hukou to homebuyers in an effort to slow
its overheating real estate market.

Hukou Goes to the Best and Brightest (and Richest)
-------------- --------------


11. (SBU) Even as provincial cities relax hukou
restrictions, Beijing and Shanghai, most of our
contacts said, will continue to maintain tight
controls due to their much higher standard of living.
Currently only university graduates, children of
Beijing natives, and the very rich have opportunities
to obtain Beijing hukou. Beijing-based companies are
allocated limited hukou slots every year (with
preference given to state-owned and high-tech
enterprises) which allow them to attract top talent
from across China. Returning graduates of

universities overseas also have preferential access to
Beijing hukou. Finally, owners of businesses that
create 100 jobs and at least RMB 800,000 (USD 108,000)
per year in tax revenue can apply for local hukou.
(These investment/tax requirements are lower for those
seeking to settle in one of Beijing's satellite
cities.)

"...I Just Don't Want Them in My Kid's School"
-------------- -


12. (C) Education, our contacts note, remains the
primary reason why Beijing and other wealthy cities
set the bar for local hukou so high. Zhengzhou stands
as a cautionary tale of the dangers sudden reform can
pose to local schools. Victor Yuan (protect),
President of the public polling company Horizon, told
PolOff that in 2004 his company surveyed parents at
three Beijing public schools about their attitudes
toward migrants. The polls suggested Beijing parents
will begin to pull their children out of a school if
migrant children exceed 15 percent of the student
body. Wang Dequan (protect),a native Beijinger who
works for the Beijing Municipal Bureau of Press and
Publication, told PolOff that in the 1990s he placed
his son in a private high school for this very reason.
Wang, reflecting common attitudes among native
Beijingers, told PolOff that migrant children, who
come to Beijing having received little education in
their home villages, inevitably drag down the academic
standards of any school they are allowed to attend.
Qin Hui, however, said lingering prejudice against
peasants, rather than education resources, is the real
reason Beijing authorities are unwilling to relax
hukou requirements. Qin argued that, given the low
birth rates among Beijing natives due to the one-child
policy, Beijing schools have more space for migrants
than popularly believed.

Comment
--------------

13. (C) All of our contacts condemn the hukou system
as one of the main contributors to inequality in China
yet few, with the exception of Qin Hui, endorse
radical reform. Rather, our interlocutors generally
expressed optimism that the modest reforms underway in
the provinces will continue to expand and gradually
cause hukou to fade in significance. A key indicator
of the Communist Party's determination to reform the
hukou system will be whether the government can pass
the new Household Registration Law during the five-
year term of the next National People's Congress.
Such a law has been in discussion since the 1980s.
Regardless of the legislation's progress, eliminating
deep-rooted hukou-related inequalities will take at
least a decade, probably longer. In the meantime, the
permanent underclass that resides in cities, but is
legally barred from receiving most benefits and
services, will continue to exist as a potential source
of social instability.
RANDT