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EC 229
Oct 25, 2023
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LESSON 6 - URBAN-RURAL DIVIDE INTRODUCTION There are substantial differences between urban and rural society in China. The current system traces its origins back to the 1950s where extensive administrative barriers were set in place when the basic institutions of the command economy were first established. For sixty years, urban and rural areas have had different governance structures and different systems of property rights. In fact, China has what amounts to two different forms of citizenship, one rural and one urban. In an effort to avoid cities surrounded by slums of unemployed migrants from the country sides, as seen in Latin American countries, the Chinese government implemented the system of hukou— a residency permit that allows an individual to migrate to a city only if employment can be secured. This system of separate rural and urban organizational structures has important economic consequences such as: Significant urban-rural income gaps. Discourages mobility. Distorts patterns of urbanization which are important to economic development. Presents an obstacle to a more efficient, knowledge-driven, middle income economy. Obstructs the efficiency of local government systems and the development of a national social service system. Given these issues, reform of the Hukou system and related systems of urban-rural land management, have been near the top of the economic reform agenda in recent years. However, as of 2015, these systems have proved stubbornly resistant to change. This lesson begins with a discussion on the origin and nature of the separate organizational structures and property-rights regimes that characterize the rural and urban economies. Chinese property-rights and governance regimes are quite unusual and differ substantially between urban and rural society. In turn, the process of urbanization will be explored. Following that, the re-emergence in the 1990s of large-scale migration will be discussed. Finally, the chapter details the economic consequences of the urban-rural divide.
A DUALISTIC SYSTEM: THE DIVISION BETWEEN URBAN AND RURAL A dual social and economic structure is very common in many developing economies. Yet, China has two unique characteristics: The land is collectively owned at the village and farmers do not own land and cannot sell it in order to leave. The benefits of local government spending are tied to the hukou system and so rural residents are largely on their own. Please watch the following videos: On China: Hukou system [3:30 mins.] From Danwei to Private Housing [3:20 mins.] Origins of the Urban-Rural Divide The rural-urban divide was institutionalized after the late 1950s and so its origins are rooted in the socialist period. Urban : The urban sector was covered with state ownership. State ownership : the work unit became the basic building block of urban society, social benefits and entitlements. Rural: In the rural sector, collective ownership in the form of the commune system prevailed. Collective ownership in which collectives supported social services out of their own local resources with no claim on national resources. A key distinction: rural residents are responsible for their own food, but food is rationed for urban residents. The Urban Economic System The social and economic system based on danwei: Food rations, employment, health care and pension, free or subsidised education and housing.
At maximum size, 109 million workers were part of the national administrative hierarchy. Benefits were implicit social contract for urban workers. Urban residence permit ( hukou ) a form of entitlement, at its peak from mid 1960s until well in 1990s. Membership in urban work unit ( danwei ) determined job. A distinctive feature was permanent employment; little mobility across work units, none across locations. Job security, access to scarce commodities, health care, pension, education for your children, low- cost housing. Urban work unit became fundamental building block of society. Urban Property Rights All urban land was nationalized and incorporated into the national, hierarchical system of state ownership. State-owned enterprises (SOEs) typically controlled and managed by local and municipal governments. Economic reforms of SOEs after the 1980s consisted of repeated, careful renegotiation of lines of authority. Ownership of urban land an important source of wealth for occupying enterprise, local government or private developer. Apartment owners have leases for land rights, not ownership. The Rural Economic System Rural Collectives Rural residents were members in a local collective, but this was not a contract with the state. Rural residents could tax themselves to provide services, but few collectives had the resources to provide much. Rural residents more likely to pay individually for the public services they received. Rural Property Rights Collectives, in principle, owned the land within its boundaries, including non-agricultural rural enterprises.
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