Of China’s 790mn urban residents in 2016, 570mn were registered in urban areas while 220mn were still registered in rural areas. By 2030, China’s urbanization rate will reach 70% and the number of urban residents will increase by 220mn. However, as the household registration system is further liberalized, registered urban residents may increase by 300mn, driving a new round of consumption growth.

The hukou-based urbanization rate rose more quickly amid reforms of the household registration system and social security system. In the past few years, China abolished the discrimination between agricultural and non-agricultural registrations and unified the pension and the basic healthcare insurance programs for urban and rural residents. Government spending on education, healthcare, social security and housing security continued to increase. The hukou-based urbanization rate rose 1.3ppt in 2016, vs. the average annual increase of 0.8ppt over 2000~2014.

Clearer rights to rural land promote land transfer, helping farmers settle in cities. The No.1 Central Government Document of 2013 proposed to comprehensively carry out rights confirmation, registration and certificate granting for rural land.  As of end-2016, rights have been confirmed for two-thirds of contracted farmland. The rights confirmation makes rural land property rights clearer and promotes land transfer, which allows more farmers to work in non-agricultural industries and helps farmers accumulate the money for home purchasing and settlement in urban areas.

The slowing growth in the number of migrant workers does not signal the end of urbanization. The pattern of urban population growth is changing. Besides migrant workers, future urban population growth will be driven more by the following sources: 1) the number of school and college students from rural areas is still growing. 2) Natural growth will become a more important source of urban population growth, especially after the two-child policy. 3) The expansion of urban administrative areas will continue to promote urbanization.

China’s registered urban population will increase by 300mn by 2030, boding well for consumer demand. According to China’s population development plan, the urbanization rate will reach 70% by 2030 and there will be 1bn people living in urban areas. With the reform of the household registration system, the registered urban population could increase by >300mn by 2030. The deepening of urbanization and providing new city dwellers equal opportunity to public services will promote household income and improve income distribution, boosting consumer demand growth.