Beijing Urged to Lend More Support to Migrant Workers

Millions of migrant workers propelled China's economic rise, underpinned by heavy investments in real estate and infrastructure. Now as the economy falters, economists are urging Beijing to lend more support to the country's underclass to spur consumption.

Economists say the Chinese government should intensify efforts to expand migrant workers' access to public services, which would help turn millions of rural laborers who left the farm to work in factories, construction and services into free-spending consumers and put the country on a more sustainable growth trajectory.

It's not just about growth. At a time of economic uncertainties, migrant workers, who are struggling to find jobs in factories and construction sites, are also viewed by China's ruling communist party as a potential source of social unrest. Offering them more public benefits including unemployment stipends could help authorities maintain social stability, a key priority for Chinese leader Xi Jinping.

Under China's hukou system, a decadeslong household-registration regime that ties social welfare to a person's place of birth, migrants have limited access to health care, education, housing and other public services outside their hometowns, making them cautious savers reluctant to spend.

While many of China's smaller cities have lifted residency restrictions in recent years under Beijing's push, the country's biggest cities that are most attractive to migrant workers have balked at following suit, fearing similar relaxations would bring exorbitant fiscal burdens.

In 2022, China reported an urbanization rate based on the residential population that exceeded 65%; however, the rate based on registered population only reached 47%. This difference suggests that there may be around 255 million migrants living in urban areas but without an urban hukou as of yet, said Sunny Liu, an economist at Oxford Economics, in a note to clients last week.

According to Liu's calculations based on an estimated 20% consumption gap between migrants and permanent residents, granting permanent residency to these 255 million migrants would lead to a significant boost in consumption amounting to 1.7 trillion yuan ($235.52 billion), equivalent to 1.4% of China's gross domestic product, assuming that migrant consumption catches up with that of permanent residents.

While policymakers have long been floating ideas of equalized access to public services, as reflected in Chinese leader Xi's common prosperity initiative, unleashing the spending power of the country's lower-income class has gained a renewed sense of urgency as an old economic model that relies on debt-fueled investments has run out of steam.

With China's need for basic infrastructure having been largely met, local governments these days have few profitable projects to invest in. Meanwhile, a yearslong slump in the property sector has shown no sign of ending. Intensifying geopolitical frictions as well as rising tensions with major trade partners over China's overproduction of manufactured products are also casting a cloud over exports, one of the country's most reliable engines of growth in recent years.

Longer-term issues including an aging and shrinking population also threaten Beijing's plan to double the country's gross domestic product per capita by 2035 from the 2020 level, economists say. The ambitious goal would require an annual growth rate of above 4.7% until the deadline and private consumption would need to grow at around 7.1% per annum, according to Oxford Economics' Liu.

With traditional growth drivers sputtering, economists have been urging bolder policy moves to stimulate consumption, including direct cash handouts to households, an approach Beijing has been reluctant to adopt due to a long-run fear over "welfarism." Another option, championed by some prominent Chinese government economists, is to spend more on public services for China's army of migrant workers, instead of lavish investments in government projects.

Millions of rural migrant workers in cities are still faced with challenges in housing, education, social insurance, said Liu Shijin, a senior government adviser in a speech last week. Noting that many local governments have announced large-scale investment projects to stabilize the economy earlier this year, Liu said that if local officials take out 10% of those funds to finance basic public services for rural migrant workers, the money would pay off much better in terms of driving demand.

That said, economists have also raised questions over how costs of expanded benefits to migrant workers should be shared among different layers of governments. Each migrant worker requires roughly CNY100,000 of fiscal financing, according to researchers from the government-run Chinese Academy of Macroeconomic Research and Development Research Center of the State Council in an article published in 2022.

Under China's current fiscal arrangements, local authorities provide most of the funding for public services, with only minor contributions from Beijing. With local governments already grappling with mounting debt, economists say the central government should take more responsibility in financing expanded benefits to migrant workers, in addition to allowing local officials to explore more sustainable sources of funding, including a now-delayed property tax.

One solution Liu proposed is for Beijing to use funds raised from its recently announced ultralong special bonds to purchase unsold apartments and transform them into affordable public housing for rural migrant workers.

"If you give migrant workers their own apartments, they will spend more on interior decorating and many other things, which will drive much bigger domestic demand than building a few subway lines," Liu said.

Write to Singapore Editors at [e-mail]

(END) Dow Jones Newswires

03-26-24 2305ET