China’s Marginalized Millions: How Beijing’s Failure to Invest in Rural Workers Hurts Economic Growth

One often hears the Chinese Communist Party lauded for “lifting hundreds of millions out of poverty,” as the expression usually goes. And there is no denying that the CCP deserves credit for that historic achievement. Less remarked on, however, is the plight of the hundreds of millions of Chinese people living on low incomes in the country’s rural areas, facing few prospects for advancement. China’s rural inhabitants are not living in poverty, but the CCP provides them with almost no means for social mobility—or any mobility at all, owing to the restrictive hukou residential permitting system.

This substantial subset of the population poses a major long-term obstacle to China’s continued economic growth, just as consequential as more familiar factors, such as the country’s “zero COVID” policy, regulatory crackdowns, and ballooning debt. Low-skilled workers once powered the manufacturing and construction booms that led to China’s phenomenal rise. But decades of discriminatory policies have trapped hundreds of millions of people in rural areas, cut off from educational and employment opportunities.

This presents a policy conundrum for the CCP. Even if rural, low-skilled workers could more easily relocate to large cities, they would struggle to compete in the labor markets there, owing to deficits in their education. And it would take a long time to build a reliable pool of skilled workers in rural areas by spending more on education, especially since doing so would require forms of economic redistribution that might be risky for the CCP. There are no easy answers to China’s rural human capital problem, which is likely to affect the country’s growth prospects for decades to come.