“A Simple Model of the Chinese Hukou System and Some Ongoing Reforms”

Lex Zhao, Kobe University 

We model the Chinese Hukou (household registration) system, from the Mao era when it was strictly enforced to the early reform era (Deng Xiaoping era) when peasants were allowed to migrate to cities for work only. We document some stylized characteristics of Hukou control, and based on which build a rigorous model of the dual labor market generated by it. The model can explain the urban-rural divide, and the fact that rural migrant workers not only made important contributions to China’s export boom, but also reversed the Chinese trade pattern from exporting primary products to manufactured goods, because they are the labor force in “the manufacturing center of the world”. Reform recovers some of the deadweight losses from Mao’s strict Hukou control, but the gains from reform are unevenly distributed. We also apply the model to examine the impacts of various policies and some ongoing reforms such as special economic zones, export-tax refund, urbanization, privatization, one-child policy, etc.