NEW SHANGHAI PERMANENT RESIDENCY POLICY GETS TEPID RESPONSE

C O N F I D E N T I A L SHANGHAI 000126


STATE FOR EAP/CM, INR AND DRL
TREASURY FOR OASIA HAARSAGER, CUSHMAN, WINSHIP
NSC FOR LOI, KUCHTA-HELBLING

E.O. 12958: DECL: 3/18/2034
TAGS: PGOV ECON ELAB PHUM EFIN CH
SUBJECT: NEW SHANGHAI PERMANENT RESIDENCY POLICY GETS TEPID RESPONSE

REF: A. (A) SHANGHAI 39

B. (B) BEIJING 682 AND PREVIOUS

C. (C) SHANGHAI 19

D. (D) SHANGHAI 120


CLASSIFIED BY: CHRISTOPHER BEEDE, POL/ECON CHIEF, U.S. CONSULATE
SHANGHAI, U.S. DEPARTMENT OF STATE.
REASON: 1.4 (b),(d)


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


1. (C) The Shanghai Municipal Government has received an
unenthusiastic response to its new permanent residency policy,
which aims to make it easier for soon-to-be college graduates
and other workers with specified "talents" to find jobs in the
city. Despite much positive media coverage when the policy was
announced in late February, observers now say the policy holds
limited short-term benefits for skilled workers and offers no
benefits to low-skilled migrant workers. The policy appears to
focus on facilitating the return to Shanghai of overseas
financial sector experts. Illustrating popular discontent with
the limitations of the policy, a March 16 article on Sina.com
included criticism from two well-known scholars, as well as
Chinese netizens. End Summary.

Shanghai's New Hukou Policy
--------------


2. (U) The Shanghai Municipal Government announced a new
permanent residency (hukou) policy in late February, reportedly
ending the quota system for hukou management and revealing a new
set of "requirements" for converting a temporary resident's
permit into a permanent residency card. Mayor Han Zheng
outlined details of the policy amid much fanfare during an
on-line webchat on February 21, stating that the six million
non-permanent residents of Shanghai "have made an important
contribution to Shanghai's economic development" and those with
"a certain level of professional knowledge" would be allowed to
apply for permanent residency after seven years in the city. As
characterized by a February 24 article in the government-owned
China Daily newspaper, "(Shanghai),with one of the strictest
population controls in the country, is opening its gates wider
to talent by approving hukou, or permanent residency, to
experienced professionals from other provinces."


3. (C) Details are not yet available, and the Shanghai Municipal
Bureau of Labor and Social Security declined a meeting with
PolOff to discuss the new permanent residency policy because
implementing regulations have not yet been finalized. According
to Cai Xuekang, Deputy Director of the Pudong New District
All-China Federation of Trade Unions (ACFTU),the main changes
under the reform would be: (1) to allow people who meet certain
criteria to apply directly to the municipal government for a
hukou rather than apply through their work unit, and (2) to
lower the qualifications for certain skilled jobs to require
only a bachelor's degree in the field. The new criteria for
qualifying for a hukou has not been announced, but Cai warned
that authorities will struggle with a backlog of applications in
the near-term because many long-term residents immediately filed
applications for permanent residency in the first month after
the policy was announced.

Finding Jobs for Graduates
--------------


4. (C) Ren Yuan, a professor in the Population Studies Institute
at Fudan University's School of Social Development and Public
Policy, told PolOffs on March 16 that the new hukou policy is
directly linked to mounting concerns about the job market for
this year's university graduates (Refs A and B). Many graduates
from outside Shanghai would have been able to remain in the city
to work under the previous rules, but the new policy would
facilitate the employment of students with "special talents"
with the promise of permanent residency in the future, he said.
Acknowledging that few students would be in a position to take
advantage of the new policy, Ren added that it is important to
view the policy as one step in a longer reform process.

But What About Migrants?
--------------


5. (C) Wang Xiaoyu, a professor at Tongji University, argued
that the impact of the new policy would be extremely limited.
He noted during a March 10 meeting with PolOff that while there
had been much positive press coverage in the Shanghai media,
other outside media outlets (including in Beijing) have
criticized Shanghai's hukou reform for not being far-reaching
enough. The new policy will not benefit migrant workers at all,
he said, and the number of professionals who will benefit is a
thin slice of those looking for a job. Without a focus on
migrant concerns, Wang stated, the policy would have virtually
no impact on Shanghai's social stability situation (Ref C).
Pudong ACFTU Deputy Director Cai agreed with Wang, stating that
of the approximately 1.5 million workers in Pudong, 700,000 (45
percent) are migrant workers, and most will not qualify for a
hukou under the provisions of the reform.

Providing Social Services to Newcomers
--------------


6. (C) Ren Yuan at Fudan pointed out that in Shanghai, just as
in other Chinese cities, much of the debate on permanent
residency is centered on the municipality's ability to bear the
costs of social services. The hukou policy "is not just a
numbers game," Ren said, as it also takes into account limited
budgets for education, health care, and social welfare.
According to Ren, Shanghai's hukou system has been the subject
of many internal municipal government discussions since 2006,
shortly after demographers realized the city's population
already had exceeded the 10th Five-Year Plan (2000-2005) target
of 16 million residents and estimated the total would reach 19
million by 2010. Some government officials argue the
municipality already is too stretched to provide adequate social
services to such a large population, while others believe
Shanghai could accommodate 24-25 million residents, Ren said.

Looking for a Few Talented People
--------------


7. (C) In the meantime, therefore, the aim of the new hukou
policy is to attract talented people to work in Shanghai's
financial sector and maintain economic growth, our interlocutors
said. While the residency policy may have been recently
announced, the idea is not a new one. At the Wall Street
Journal China Financial Markets Conference on November 17, 2008,
Fang Xinghai, Director General of the Shanghai Financial
Services Office, said his office was preparing to "visit
overseas financial capitals to recruit Chinese nationals and
overseas nationals" to work in Shanghai's financial sector (see
also Ref D). Likewise, Cai characterized the new policy as
"part of a broader plan to attract talent to the city."

The New Hukou -- "A Mere Scrap of Paper"
--------------


8. (U) A March 16 article on Sina.com illustrated some of the
popular discontent with the limitations of the new permanent
residency policy. Professor Wang Dabeng of East China Normal
University's Population Research Institute, and Professor Liang
Hong, Vice Dean of Fudan's School of Social Development and
Public Policy, both said that without corresponding social
welfare reform, the new hukou policy is a "mere scrap of paper."
Many Chinese netizens participating in on-line discussion
groups were equally dismissive of the policy. A representative
viewpoint expressed in one netizen's comment called for
abolishing the hukou system rather than reforming it.
Shanghai's hukou system has "caused unnecessary social conflicts
and deterred social, economic, educational, technological, and
cultural development," the netizen wrote.

Comment: Trying to be Responsive to Concerns
--------------


9. (C) Shanghai's new hukou policy is apparently an effort by
the municipal government to reassure residents in Shanghai, as
well as talented prospective migrants from other parts of China
and overseas, that the city is serious about eliminating
obstacles to university graduate employment as per the concerns
voiced in Ref A. The new policy may be insufficient to effect
real change, but the move indicates that the Shanghai Municipal
Government may have policy room to maneuver to prevent social
instability. It is also possible that easing the path to
permanent residency will facilitate the relocation to Shanghai
of financial sector experts who currently are plying their trade
overseas.


CAMP