Professor Chan argues that all of the country’s urban growth and prosperity is not actually filtering down to the majority of the rising urban population. The reason is that the majority of the urban population is prevented from fully participating in the booming urban economy because of a Mao-era rule that draws a harsh line between those from urban areas and those from rural ones.
Established in 1958, hukou establishes a two-tiered population structure of rural and urban citizens. Urban citizens are given access to social services and welfare programs, including public education and affordable housing. Rural residents are not. Status is hereditary, meaning that once a family is in one tier it will always remain in that tier. This has been a problem for many rural residents who want to leave their agricultural lifestyles to earn the higher wages in cities working in factories or construction, but who are faced with slum-like living conditions and an effective low ceiling over their social and economic mobility.
Chan says it is this system of official discrimination that has enabled China to experience such economic growth – and what makes it unlikely that the second-class citizens will be able to become the sort of consumerist middle class outsiders are predicting.
“I would argue that this is one of the most powerful forces creating the modern global economy that we see,” says Chan. “There’s 150 million super-exploitable, very young migrant workers in China. And this is all very much created by the hukou system.”
This is a classic case of the dual labor market--a theory which is usually assumed to apply to the way in which rich countries incorporate immigrants. But China seems to have established an internal dual labor market that benefits the "officially" urban population at the expense of migrants from rural areas who lack the legal right to establish permanent residency in the city and thus cash in (literally) on the labor that they are contributing.