Rural to urban migration in China A look at an emerging trend by Chris Maloney http://www.maloneyonmarketing.com SMASHWORDS EDITION Copyright © 2010 Chris Maloney Smashwords Edition, License Notes This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author Chapter 1: Introduction Since China commenced reforms in 1978 to transform it from centrally planned into a market economy, it has experienced a tenfold increase in GDP. In 2006, on a purchasing power parity (PPP) basis, China became the second largest economy in the world only behind the US (CIA 2007). With a population of over 1.3 billion and a growth rate of 0.6%, the current economic success is due to a constant stream of cheap labour driving industrial development (Bureau of East Asian and Pacific Affairs 2007). However, not all Chinese are benefiting from the growth of the economy with 130 million falling below the international poverty lines (CIA 2007). Those suffering the most are those in rural China, and the gap between the rich and poor is widening. The reforms to open up the market, have caused a byproduct of significant rural to urban migration, which brings with it business opportunities as well as contentious political issues to deal with. This paper looks at the rural to urban migration issue and the extent that it has influenced business opportunities for organisations doing business in China. It covers: • Why rural-urban migration was not an issue in China prior to reform; • What changed to cause rural-urban migration; • What the rural-urban migration issue in China is; • The extent of influence on business opportunities; • How the Chinese Government has responded; and • Business opportunities looking forward. Chapter 2: Rural-urban migration prior to reform During the Maoist period, the migration of labour in China was tightly restricted and controlled. The control of population flow into urban areas by rural residents was achieved through a household registration system (hukou) which has been likened to a regional apartheid (Goodkind & West 2002). In addition to the household registration system, strict commune controls and food rationing were controlled by the work unit again to minimise migration to urban areas (Knight et al 1996) Chapter 3: Changes causing the rural-urban migration issue In 1978, Mao’s successor Deng Xiaoping began launching reforms to open up the Chinese market. The once self reliant Chinese economy was heading towards bankruptcy and something needed to be done (Li & Huang 2005). Reforms included the disbandment of communes, the phasing out of food rationing, and the relaxing of internal migration policies (Euromonitor 2007c). Major infrastructure projects also commenced with the hope of stimulating economic growth and creating demand for unskilled labour (Goodkind and West 2002). The most notable of the reforms introduced was the opening up of the market for foreign direct investment. The Chinese Government initially channeled foreign direct investment into manufacturing industries in special economic areas (typically urban coastal areas), with over 380,000 foreign enterprises established between 1980 and 2001 (Zhu 2004). The foreign investment in manufacturing has been driven by the low cost labour market in China. With China’s accession to the World Trade Organisation in 2001, the market is being progressively opened up in the services sector. In 2005, China received almost $80 billion in Foreign Direct Investment according to World Bank statistics (Bureau of East Asian and Pacific Affairs 2007). The reforms combined to expose an oversupply of labour in rural areas, and increased demand for unskilled labour in the urban coastal areas. They produced dramatic economic growth in these areas, exposing massive differences between urban and rural incomes and quality of life. They also made labour mobility easier, working together to spark the most significant rural to urban migration in human history (Roberts 2002). Chapter 4: The rural-urban migration issue in China Around 18 million people, equivalent to the population of Australia, migrate from rural to urban areas in China each year according to government estimates (Euromonitor 2007c). As at 2004, there was estimated to be 80 to 110 million rural migrants living in urban areas (Manquand 2004). By 2015, over 50% of China’s population is expected to reside in urban areas (Euromonitor 2006). Rural migrants take the low paid 3D (Difficult, Demanding and Dangerous) jobs that urban residents do not want (Shen 2002). Despite this, a survey in Shanghai by Wang and Zuo (1999) showed that migrants “on average at least double their income” by moving to jobs in urban areas. However greater income is only one of four relatively equal reasons as to why labourers migrate from rural to urban areas. The other reasons are ‘surplus labour’ in the rural area, ‘more experience of life’, and ‘ more skills’ suggesting that the reasons for migrating are more than purely economic, there is a social motivation as well (Knight et al 1996). A study by Li (2006) revealed similar motivations due to over supply of labour in rural areas and increased demand in urban areas: ’Back in the village, I did not have enough work to do. We would not be able to survive if we did not work. In the city, we have more opportunities to work. If I lose my job, I can go for another one.’ The migrants are generally young adults between 20 and 35 (Goodkind & West 2002), and tend to be better educated than those that do not migrate (Seeborg et al 2000). Most leave their families behind, and of the married migrants, over two thirds did not bring their spouse (Knight et al 1996). Most migrants (50 to 70 percent) send some of their pay, called remittances,back to their family. This is helping to stabilise the rural economy while the government determines how to bridge the growing inequality in income between urban and rural areas (Manquand 2004). The working and living conditions migrants are exposed to are harsh, with some 27% actually living in dormitories at their workplace (Wang & Zuo 1999). The household registration system means that rural migrants are unable to permanently settle in the cities; hence they are called a ‘temporary’ or ‘floating' population. They do not share some of the basic social welfare and opportunities that permanent urban residents do (Shen 2002). Chapter 5: Influence on business opportunities The rural to urban migration has had a dramatic influence on businesses opportunities in China, on both the demand, and primarily the supply side. On the supply side, lowering costs is a major driver of employing rural migrants for profit motivated foreign firms. Migrants on average receive 80% of the wage of an urban resident, and employers are not obliged to provide provision for housing, health care, or retirement benefits which they are for urban employees (Knight et al 1996). In what is called a ‘race to the bottom’, companies are seeking to maximise the use of China’s low cost labourers, exploiting the fact that they have not organised into any sort of labour union. A study by Li (2006) emphasised this exploitation practice with the following quote: ‘I work on the counter in a dining hall. What I really do not like about my job is that although my colleague and I are doing the same job, my salary is only one third of his. He is from Tianjin. I earn RMB¥ 400 per month and he earns RMB¥ 1,200 per month . . . No, he does not have better skills. The cooks earn more. I can understand that. They have better skills . . . Our employer’s explanation is that urban employees do not need accommodation; that is why we are paid less. However, even if we rent a place on our own, I do not need to spend RMB¥ 800 . . . The Tianjin colleague also gets free food like us every day.’ Migrants have also shown to be harder workers than urban residents. A study by Knight et al (1996) showed that migrants return more than three times their wage in output, whereas urban residents do not even break even for their companies. Companies often carry surpluses of urban workers, and can still profitably hire additional rural migrants. Increasingly, there are actual labour shortages appearing in China, which is concerning given the economy is built on a seemingly unending supply of low cost labour. In Dongguan, which produces approximately a fifth of Guangdong province exports is “lucky to fill one of every two jobs available”. Such shortages will push up the cost of labour, and drive the move to less labour intensive industry (Economist 2004). On the demand side, the influx of labourers into urban areas has created a new population of consumers. Despite being underpaid compared to the urban counterparts, most of the rural migrants have never had so much money (Manquand 2004). This is creating a significant market for household durables, electrical products, and in some cases luxury consumer goods (Euromonitor 2006). Almost all city residents, including migrants, own a mobile phone (Cartier, C. et al 2005) Chapter 6: How the Chinese Government has responded The income inequalities between urban and rural areas, and the unfair living and working conditions of the rural to urban migrants, is causing significant political and social unrest in China. Euromonitor (2007b) notes that with over 900 million people living in rural China, their “contentment is essential to national stability”. The Chinese Government is aware of this unrest, and President Hu is promoting a “harmonious society” and a “spiritual civilization” through rural targeted reform policies (Bureau of East Asian and Pacific Affairs 2007). Hu’s government has introduced nine years of free compulsory education for all rural children. This is designed to reduce illiteracy and increase quality of life for the rural population. The government has also forced schools in urban areas to take in rural migrants children if they have lived in the area for more than 6 months (Goodkind and West 2002). The government is attempting to improve quality of life in rural areas by increasing health care, and abolishing agricultural tax (Economist 2005). According to Li (2006), there are also reforms targeted at rural-urban migrants including the building of “cheap apartments for migrant workers to live in; standard labour contracts for migrant construction workers; an extension of the minimum wage and automatic salary-receiving bank accounts for migrant construction workers; and the extension of social insurance to rural–urban migrants”. To avoid overcrowding in the major cities such as Beijing and Shanghai, the government is building infrastructure and rewarding foreign investment in second tier cities away from the coast areas, such as in Chongquing which is planned to be the “Gateway to the West” (Bureau of East Asian and Pacific Affairs 2007). Foreign firms will also benefit from lower cost labour in these cities as the wages in Beijing and Shanghai are on the increase. A byproduct of the rural-urban migration, and China’s reliance on coal for energy, is serious environmental issues. China contains 7 of the 10 most polluted cities in the world, and half the population does not have access to clean drinking water (Bureau of East Asian and Pacific Affairs 2007). A series of environmental reforms have been put in place to address these issues. Chapter 7: Business opportunities looking forward. There are several business opportunities that will arise in the future as a result of the rural-urban migration issue. Firstly, the expansion of cities to accommodate the swelling population will require investment in infrastructure, construction and housing. Companies specializing in these fields will benefit, particularly as they will be able to hire low cost rural migrants to do the work. There will also be demand for companies with environmental technologies to overcome the serious issues in the cities (Austrade 2007b). Secondly, a boom in consumption is expected as a key trend in the 2007 to 2010 period. This will cause a foreign investment shift from the industrial to services sectors to accommodate the consumer demand. Recent surveys of younger Chinese show that save very little as they are “optimistic about China’s economy and their own earnings potential” (Euromonitor 2007a). Finally, foreign education providers in China will experience strong demand as China’s own system cannot expand fast enough to keep up with demand. Given the one child policy, parents are willing to spend up big on their ‘little emperors’ for a good education (Austrade 2007a). Chapter 8: Conclusions The migration of rural to urban China has significantly influenced business opportunities for organizations doing business in China on both the supply and demand side. The future economic growth of China is reliant on the constant stream of low cost labour, so the rural to urban migration is not expected to slow in the near future, despite government reforms targeted at rural areas. The shift to a consumer led economy driven by the rural migrants will be the key future trend in China that business will need to be aware and take advantage of. Chapter 9: References Austrade 2007a, ‘Education to China’, viewed 17 September 2007, <http://www.austrade.gov.au/Education-to-China/default.aspx> Austrade 2007b, ‘Environmental technologies to China’, viewed 17 September 2007, <http://www.austrade.gov.au/Environmental-technologies-to-China/default.aspx> Bureau of East Asian and Pacific Affairs 2007, ‘Background Note: China’, US Department of State, viewed 17 September 2007,<http://www.state.gov/r/pa/ei/bgn/18902.htm> Cartier, C. et al 2005, ‘The Information Have-Less: Inequality, Mobility, and Translocal Networks in Chinese Cities’, Studies in Comparative International Development, Summer 2005, Vol. 40, No. 2, pp. 9- 34. 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It covers: • Why rural- urban migration was not an issue in. They also made labour mobility easier, working together to spark the most significant rural to urban migration in human history (Roberts 2002). Chapter 4: The rural- urban migration issue in China Around