China’s Migrants Show Great Economic Potential

China’s economy has entered a ‘new normal’, slower growth pattern. In addition, consumption is touted to play a more significant role in boosting economic development. The potential is large. However, if it has to be achieved, the Chinese government needs to focus on unlocking the consumption potential of migrant workers who are a major driver of structural change and urbanisation in the Chinese economy.

China’s economy has entered a ‘new normal’, slower growth pattern. In addition, consumption is touted to play a more significant role in boosting economic development. The potential is large. However, if it has to be achieved, the Chinese government needs to focus on unlocking the consumption potential of migrant workers who are a major driver of structural change and urbanisation in the Chinese economy.

The number of rural–urban migrants and migrant incomes per capita has increased rapidly over the past decade, resulting in a huge total migrant income pool. This new generation of migrants has a higher propensity to consume out of increments to their incomes than the previous generation of migrants, making them an emerging consumer group whose impact on the shape of the new normal could be significant.

However, a number of factors are suppressing migrant consumption. Compared with urban residents, migrants are disadvantaged in employment conditions, income levels and access to social welfare and public services. They usually do not have stable jobs, they earn lower incomes and they have fewer social security and public service entitlements. These factors are positive influencers of consumption, and the lack of them is inhibiting migrants’ consumption.

The gulf between urban residents and migrants is driven by China’s hukou (urban registration) system, which has been hindering migration from rural to urban areas. Despite the implementation of many reforms to the hukou system in the past three decades, migrants still do not have equitable access to education, health care, social welfares and public services with urban residents.

The average yearly consumption per capita of migrants is RMB8627, which is 22 percent lower than the RMB11,104 average for urban residents. Migrants consume 14.7 percent less in food than urban residents, and work-related consumption is 19.6 percent lower. The bulk of the difference comes from facilities and services consumption (37.6 percent) and human capital consumption (47.9 percent). The relative proportions of food, work-related, facilities and services, and human capital consumption are largely similar between the two groups.

Migrants consume less in total and food-related consumption per capita compared with urban residents. Total consumption per capita for migrants is 24.4 percent lower than for urban residents, and food consumption per capita is 14.5 percent lower. However, migrants consume more food from additions to their incomes than do urban residents. This suggests that if migrant incomes were to increase, the effect on national food consumption would be larger than if just urban resident incomes increased.

According tour own research, if migrants’ income per capita were to increase by 1 percent, 0.25 percent of this will be used for consumption. If migrants’ incomes increased by RMB1, then their total consumption would increase by RMB0.16. Urban residents, on the other hand, would only increase their consumption by RMB0.10 after a RMB1 increase in income.

Expanding pension coverage is an important way to promote migrants’ consumption. The pension coverage rate has a positive effect on both total consumption and food consumption for migrants, but almost no effect on total consumption and food consumption for urban residents. This implies that pension coverage expansion would promote migrants’ consumption.

Improving educational levels can also make a difference. After controlling for other factors, total consumption per capita and food consumption per capita of households, whose heads have had more years of schooling are higher for both migrants and urban residents.

Migrant incomes have been increasing rapidly in recent years. Therefore, if migrants are able to enjoy resident rights in terms of access to services and facilities, social security and so on in their adopted urban home, we can expect their consumption potential to be huge.

If migrants could consume like urban residents, their total consumption per capita would increase by RMB2333, or by about 27 percent — even if their characteristics (such as lower education levels or younger household heads) remained the same. Food consumption would increase by 16.7 percent, which is the lowest increase among all categories of consumption. Work-related consumption and human capital consumption would increase by 35.7 percent and 37.3 percent, respectively. Facilities and services consumption would increase by a massive 56.7 percent.

In recent years as China has been going through a process of urbanisation, migrant incomes have been increasing, pension coverage has been expanding and the educational level has been improving. By improving the demographic characteristics of migrants and allowing consumption to change naturally, migrants have the potential to become a huge emerging consumer group and to play an important role in boosting domestic demand and promoting China’s economic development.

Granting migrants full residency rights, such as access to education, health care and social security, is not only an important social task and challenge of urbanisation, but also appears to be an intrinsic requirement for China’s economic development under the new normal.

China has made great efforts to provide more and better public services and social welfare for migrants. The government should continue promoting the welfare and livelihood of migrant workers in order to further tap the economic benefits of their consumption potential.

Migrant workers key driver of Chinese consumption is republished with permission from East Asia Forum