China Payroll
Hukou System in China: An Overview

Hukou System in China: An Overview

What is the definitoin of Chinese Hukou System?

Hukou is a legal document that records the basic information of the household population, such as the natural person’s name, date of birth, relatives, and marital status.

The hukou system was implemented in China as a contemporary method of population registration in 1958. It was established as a part of the early communist government’s economic and social reforms. By offering personal identity cards, the hukou system made a significant step toward becoming ingrained in the fabric of everyday society in 1985.

The registry, which is the hukou itself, contains basic demographic information for each individual, which includes the following:

  • Status, ie urban or rural
  • Legal address
  • Sector of activity
  • Religion
  • Physical description

How the Chinese hukou system works?

In 1958, China implemented the hukou system, in which a hukou book was assigned to each household to categorize the residents’ hukou according to their place of origin. The practice will continue.

Each Chinese citizen is classified as either an agricultural (rural) or a non-agricultural (urban) hukou holder under the hukou system.

Rural hukou are typically assigned to residents of towns and villages, while urban hukou are typically assigned to residents of larger cities; each type of hukou enjoys distinct and distinct rights.

The hukou is inherited as a legal document attached to one’s household registration. For example, if the parents have an agricultural hukou, all of their descendants will have a rural hukou as well.

In terms of rights and entitlements, those with rural hukou are given arable land to live on, whereas those with urban hukou have access to government jobs, subsidized housing, education, and healthcare.

However, the rights of urban hukou holders differ in different Chinese cities, such as those offered in megacities versus those offered in smaller cities.

Chinese citizens can also transfer their hukou under certain conditions, such as while studying or working.

University students may transfer their hukou to the city of their university, but it will expire after graduation.

Migrant workers who meet certain criteria can be granted an urban hukou. This includes educational qualifications, technical expertise, entrepreneurship, and so on. In larger cities with a competitive labor market, the process becomes more complicated.

How the Hukou System Impacts on China’s Economy

As previously stated, China has been easing the distinction between urban and agricultural hukou since 2014. In 2016, the country set a goal of providing urban hukou to 100 million immigrants by 2020.

The goal of such reforms is to increase equality among different types of hukou holders and to increase labor market mobility. The urban hukou was also granted to migrant workers in the hopes of increasing domestic spending and consumption by migrant communities, which had previously focused on saving the majority of their income for future expenses such as marriage or retirement.

The hukou system in China remains a reflection of the country’s population management emphasis, which influences the country and the opportunities available to migrant workers.

China has also faced challenges as a result of Chinese employees’ lack of mobility as a result of Hukou restrictions. Since 2011, the Chinese workforce has shrunk every year, putting strain on the economy and leading to a significant increase in annual labor costs.

Chinese officials turned their attention to rural migrant workers as part of the country’s efforts to find a solution to this problem. In 2017, China had just under 300 million migrant workers, accounting for roughly one-third of the country’s working population and a critical component of the Chinese economy.This is one of the reasons why China’s desire to continue reforming and improving its Hukou system has remained consistent over the years. China has been focused on shifting its economy in a direction that advances its services industry and increases domestic consumption. The Chinese government intends to boost the country’s overall economy by reducing restrictions on labor mobility and making the hukou a catalyst for improved social services.

How the Hukou System Impacts on Employees Working in China

Employers in a free market are rarely concerned with a candidate’s location, aside from the practicalities of interviewing the candidate, any relocation expenses they may seek, and any difficulties in adjusting to a new location.

Employers and candidates in China frequently face bureaucratic challenges as a result of the hukou system, which can be seen as undermining worker mobility at times.

Because of these factors, corporate recruiters in China face challenges in attracting and retaining skilled workers.

However, new governmental reforms and compensation policies implemented by respective companies aim to address these issues when hiring for elite positions in China.

It’s important to remember that the Hukou system affects both domestic and foreign workers in China. Although it is uncommon for employers to pay close attention to their employees’ locations in general, certain aspects of Hukou can create challenges for employee mobility. This causes difficulties for Chinese corporate recruiters, as Hukuo regulations can make it difficult to attract and retain talented professionals.


Chinese companies will frequently assist their employees in the process of obtaining an urban hukou. This ability to obtain preferential treatment in the social welfare system is a critical component of recruitment that allows Chinese firms to acquire top candidates.

Companies that provide household registration documents assume responsibility for the hukou conversion of their employees. Businesses frequently have a legal team that assists them during this transition, or they will outsource the assignment to a third-party legal firm or an international PEO. Some companies will go out of their way to pay the Hukou fee conversion as an employee benefit.

Offering this benefit enables companies to gain leverage in contract negotiations and retain their more skilled workers for a longer period of time than they might otherwise be able to. Companies can also provide social welfare compensation to employees who chose to keep their rural hukou rather than transition to their new urban hukou documentation.

Many rural hukou holders want to keep their hukou status because rural land values have risen in the last decade, and obtaining an urban hukou would require them to give up valuable land near their rural homes.

Companies can offer indirect benefits to employees to encourage them to accept the hukou status that is best for the business. Incentives may include a housing fund, health insurance, transportation subsidies, and other benefits.

Hukou talent incentive

Municipal governments in China now have more leeway in determining quotas and eligibility criteria for hukou conversion. Megacities continue to limit their population size and have strict criteria for granting a hukou.

To screen applicants, Beijing, Shanghai, Guangzhou, and Shenzhen have implemented a point-based system. For those applying for a Beijing hukou, factors such as employment type, property ownership, education, and innovation achievements are all taken into account.

Other large and medium-sized cities use hukou preferential policies to attract talent. Many second-tier cities are competing to offer hukou incentives in order to attract new graduates.

Chengdu, for example, allows all university graduates to apply for the city’s hukou before finding work, whereas Wuhan allows all workers who graduated within the last three years to apply for the city’s hukou.

Companies should consider different cities’ hukou policies, which are critical to attracting elites in specific fields and an important factor when deciding where to set up shop.

China is currently on track to meet its economic growth target of 100 million new urban hukou holders. With additional measures being implemented and city lines being reclassified, the government remains committed to meeting the 2014 goal.

The hukou system is complex, presenting both challenges and opportunities for residents as well as businesses seeking to expand into the country. Contact us now to learn more about the system’s complexities.

Verified by MonsterInsights