Population Is a Problem | China Could Have 36% Fewer Young People in a Decade — 11 Charts on How Cities Are Fighting Over Them

This year alone, 14 second-tier cities have used household-registration rules and cash subsidies to compete for young people. How exactly are they doing it?

In 24 hours, more than 300,000 people decided to move their household registration to Tianjin. Four policy revisions inside 96 hours took them from hope to frustration.

On May 16, Tianjin announced a relaxed “Haihe Talent” registration policy: no job required, no housing, no social-insurance record. Anyone under 40 with a bachelor's degree could fill out a form on their phone and become a resident of the city with the highest rate of admission to top-tier ("first-batch") universities in the country.

Within a day, the official "Tianjin Police" app briefly hit No. 1 on the App Store's free chart, and its servers went down. Over the next two days, the Tianjin government issued four revisions in a row, ruling that people employed elsewhere could not hold a hukou in name only: they had to transfer their personnel file before their application could go forward. Scalpers were said to be reselling "empty" registration slots for 40,000 yuan each.

Tianjin's hurry is easy to understand. Since March, 13 other second-tier cities had already loosened their rules to pull people in.

Over the past year Xi'an relaxed its policy five times, until applying meant scanning a QR code on your phone and waiting for the hukou card to arrive by courier. In the first quarter of this year alone, Xi'an signed up 240,000 new residents — roughly its total for all of last year. The push has already turned into a joke: you change trains at Xi'an station and a police officer asks, "Are you from Xi'an?" "No." "What's your education? What year did you graduate?" "Bachelor's, graduating this year." "Come with us to the station, register on your degree, and we'll reimburse your train ticket."

Wuhan went further, promising to "keep a million university graduates in five years" and inventing a policy that gave newly registered graduates 20% off rent and home purchases. In 2017 it signed up 142,000 university graduates, six times the year before.

Beijing and Shanghai are planned around populations in the tens of millions. Xi'an, with a permanent population of just over 8 million, pulled in 500,000 households in less than half a year — and the costs and benefits are already being argued over.

"When population pours in sharply over a short period and exceeds a city's carrying capacity, shortages show up across public services — infrastructure, education, healthcare, social welfare," Lan Zhiyong, a professor at Tsinghua University's School of Public Policy and Management, said in an interview.

But strain on schools and infrastructure takes time to show. Housing prices react first.

The National Bureau of Statistics' latest price index for newly built commercial housing in large and medium-sized cities shows Xi'an home prices up 11.2% year on year in April. Chengdu, which opened its doors early, saw resale prices rise more than 70% in 2017, the fastest in the country.

Over this year's May Day holiday, the Ministry of Housing and Urban-Rural Development summoned officials from 12 cities, Xi'an and Chengdu among them, over prices rising too fast. By our count, 10 of those cities had issued new talent policies in the past year — the kind that let university graduates register directly.

In China, no one needs the value of a hukou explained. Education, healthcare and social insurance are tied to it, or favor local residents. Over the past few years it has also become the single most powerful tool for cooling property speculation.

This wave of second-tier city talent policies is changing all of that.

"New talent policies" began in late 2016 — 14 cities followed in the first five months of this year alone

Outside Beijing, Shanghai, Guangzhou and Shenzhen, second-tier cities used to have clear registration rules, with years of work experience and points systems as the basic thresholds.

Tianjin announced a points-based system in 2013: a full year of social-insurance contributions was worth 12 points, among other requirements, and slots went to applicants in descending order of score. Nanjing, in 2014, made bachelor's-degree holders work a full year — and associate-degree holders two years — before they could apply.

The first city to let university graduates register directly was Shenzhen, by then already first-tier. In December 2016, Shenzhen issued its Measures for the Implementation of Talent Introduction, allowing anyone under 35 with an associate degree or higher to apply as talent.

Three months later Xi'an, Fuzhou and Chengdu followed with policies letting bachelor's-degree holders register before finding a job. Within a year, 12 second-tier cities had announced looser talent-registration thresholds — on average, one new city joined the hunt every month.

In 2018 the pace picked up. Starting in March, 11 cities — Hefei, Changchun, Nanjing, Shijiazhuang, Tianjin, Shenyang and Hohhot among them — announced talent policies within two months, every one of them using the hukou to attract university graduates. Shenyang, Hohhot and Nanchang went further still, opening registration to holders of vocational secondary-school diplomas.

The rush shows how anxious these cities are about losing the race for people. Cities that moved last year had already been advertising themselves, and had genuinely won large numbers of new residents.

Over Chinese New Year, Chengdu ran its recruitment ads all the way into subway stations in Wuhan and Hangzhou. From the photos alone, with "Chengdu — Promising You a Beautiful Future" boards covering the platforms, it is hard to tell whether you are in Hangzhou or Chengdu.

We counted every talent policy second-tier city governments have issued: of 31 second-tier cities, 30 announced one in the past two years, and 25 lowered the bar for university graduates to register. The lone holdout, Chongqing, said recently through its municipal political consultative conference that it was studying policies to attract talent.

Being young is enough — local governments start buying people with subsidies

Using talent to build new industries is a slogan second-tier cities repeat often. Nanchang wants to speed up the recruitment and cultivation of top and leading talent for strategic emerging industries. Wuhan wants to be the "most university-graduate-friendly city" and force industrial upgrading in the process.

Building new industries means attracting people with particular skills. Cities young people fight to get into, like Beijing and Shanghai, keep tight limits on who may register. Beijing's Measures for Optimizing Talent Services, issued in March, said only programmers earning more than 70,000 yuan a month could register directly. Shanghai's “Gathering Elites” policy this year offers permanent-residency ID cards to the world's top foreign talent.

Behind the talk of industrial upgrading is slowing manufacturing growth. Second-tier cities have spent years reshaping their industrial mix. But compare the GDP by sector of Xi'an, Wuhan and Chengdu and the services sector in China's second-tier cities still lags far behind first-tier cities like Beijing.

Attracting graduates trained for a given industry really can speed up that shift. A large pool of young labor can draw big companies headquartered in Beijing, Shanghai and Guangzhou to open branches in second-tier cities; it also eases local firms' hiring problems. Those are the obvious gains.

Sun Lijun, deputy general manager of Baoye Group Co., Ltd., put it bluntly in an earlier interview: "The shortage of talent is already seriously hurting our development. We don't lack business. We lack people." Recruiting a PhD holder through a talent program to start a company, then finding nobody underneath who could do the work, was for a while an embarrassment local talent-office directors could not shake off.

In practice, though, second-tier cities in this round have not restricted which majors qualify to match their services sector at all.

The threshold is simply a bachelor's degree and an age under 40. Industrial upgrading aside, what these cities plainly care about this time is whether they can win educated young people at all.

Letting graduates "register first, find work later" has become the core of this wave. By our count:

Xi'an, Tianjin, Wuhan, Changsha, Haikou, Hohhot, Nanchang, Shenyang, Zhengzhou, Shijiazhuang, Nanjing, Fuzhou, Chengdu, Dalian, Harbin, Qingdao, Taiyuan, Jinan, Hefei, Kunming, Nanning, Ningbo, Qingdao, Urumqi, Yinchuan and Changchun — these 26 cities have lowered the educational bar for registration. Fuzhou, Haikou, Hohhot, Nanchang, Shenyang, Xi'an and Zhengzhou have gone further, down to a vocational secondary-school diploma.

A policy that admits anyone with a basic degree, whatever the major, does not suggest much seriousness about using talent to rebuild an industrial base.

Only six second-tier cities went after high-level talent instead. Hangzhou, Lanzhou, Xiamen, Urumqi, Chongqing and Yinchuan, guided by their own development plans, kept their thresholds and chased senior technical specialists in the industries they care about.

Hangzhou has been issuing talent policies since 2015; a graduate only needs one year of local social-insurance payments to register. That early planning paid off — data in the 2017 University Graduate Employment Destination Report shows that, Beijing, Shanghai and Guangzhou aside, Hangzhou is among the top five cities graduates want to move to, second only to Chengdu among second-tier cities.

Unlike earlier scrambles over academicians, national "Thousand Talents Program" experts, Yangtze River Scholars and recipients of the National Science Fund for Distinguished Young Scholars, the striking thing about this "war for people" is that everyone wants the young, especially fresh university graduates — and more and more cities, without coordinating, are using the hukou to get them.

A single piece of paper carries that much weight because, since the planned-economy era, personal welfare has been tied to household registration. Much of what people depend on in a city — schools, hospitals, social insurance — requires a local hukou.

And in recent years, needing to slow fast-rising home prices, second-tier cities gradually tightened rules that had once let almost anyone register. That only made the hukou matter more.

Opening registration by degree is not the whole story. The second-tier cities that have actually attracted large numbers of young people also hand out cash.

Wuhan, which moved earlier than most, invented direct rent and purchase subsidies for newly registered graduates: 20% off rent, and 20% off government-built affordable housing.

Subsidies spread from there — hotel rooms for job interviews, 1,000-yuan bonuses, rent subsidies, home-purchase subsidies, living allowances. Anxious second-tier cities started buying talent.

Hainan province offers home-purchase or rent subsidies of 2,000 yuan a month to master's-degree holders and 1,500 yuan a month to bachelor's-degree holders, for three years running. Hefei gives bachelor's-degree holders 15,000 yuan a year toward rent. Harbin gives newly registered graduates 500 yuan a month, Taiyuan 1,500 yuan a month. Yinchuan gives bachelor's-degree holders who start their own businesses a living allowance of 26,000 yuan a year.

Some cities have also loosened purchase restrictions. Haikou and Nanjing, among others, encourage newly registered graduates to buy government shared-ownership housing. The Haikou government says new registrants living in talent apartments will be granted 80% ownership after five years of full-time work and 100% after eight.

Nanjing likewise offers newly registered graduates shared-ownership homes at a discount. After five years, the government's 50% stake is handed over to the owner as a gift.

Beyond housing, some cities also promise priority healthcare and school places for the children of newly registered talent in short supply.

Cities are not only subsidizing individuals. They are also paying companies to move.

Attracting high-tech firms has long been a large part of second-tier cities' talent policies, and this time it is being aimed at young people too.

Most of the new policies use public money to reward companies and to back graduates starting businesses — low-interest startup loans, partial tax breaks. Recruitment agencies that land highly skilled hires get rewards as well.

A company that sets up locally can absorb large numbers of newly registered young people. The companies themselves also employ engineers, who are core consumers of entertainment, shopping and housing.

In August 2017, Smartisan Technology closed a 1-billion-yuan funding round backed by the Chengdu municipal government. Three months later, about 200 of its R&D and product staff moved from Beijing and Shenzhen into an office building in Chengdu's Chenghua district.

Luo Yonghao, who had spent years attacking the idea of buying property, bought the first home of his 45 years there. He used himself as the example: "Housing in Chengdu is only a bit over 20,000 yuan per square meter. My wife took one look and fell apart — she sold her place in Tianjin and bought here instead. We told our Beijing colleagues about it, using ourselves as proof, and they were all astonished. We'd worried young people wouldn't want to come. In fact they 'surrendered' two days after arriving."

Five months before he bought that home, Luo had written on Weibo that you can live well without owning one: "I'm forty-five this year. I can afford a home, but I still haven't bought one, and I'm living very well. It's a matter of how you think about it."

Xiaomi is a similar case. In July 2017 it formally moved from Beijing to Wuhan's Optics Valley. Along with substantial tax revenue, Wuhan picked up the spending and housing demand of the several hundred employees who came with it.

Before that, the Yangtze River Industry Fund, financed by Hubei's provincial treasury, put up 6 billion yuan and signed a partnership with Xiaomi, each side matching the other to raise 12 billion yuan and establish the Yangtze River Xiaomi Industry Fund, to support the expansion of Xiaomi and companies in its ecosystem.

Young people have become a scarce resource — and there may be a third fewer in ten years

In a society growing older, young people are a scarce resource.

Healthcare and social security today rest on them: people who work pay in, and the money goes to the retired and the unemployed; the healthy pay in, and the money treats the sick.

Over the past decade, the share of Chinese aged 20 to 40 has fallen steadily. The 2010 census counted 219 million people born in the 1980s, 188 million born in the 1990s and 147 million born in the 2000s — a 33% contraction across thirty years.

The future looks worse. According to the 2016 national population survey, falling birth rates have left China's population aged 10 to 19 36% smaller than in 2005 — meaning the young people entering the workforce over the next ten years will number more than a third fewer than they did ten years ago.

Aware of the problem, China opened the two-child policy to all couples in 2016. The birth rate fell again last year anyway. In early 2018, birth figures from the National Bureau of Statistics showed 17.23 million births in China in 2017, down 630,000 from the year before. Births of first children dropped sharply.

That was 3 million below even the lowest forecast the National Health and Family Planning Commission had made. For the birth count to shrink this much in only the second year of the universal two-child policy shows that the collapse in willingness to have children ran far ahead of expectations.

China began enforcing family planning in 1970, when fast population growth was seen as a crushing burden on cities. But the evidence since suggests the opposite: cities whose populations grew fast did not run out of resources. They generated more demand, which lifted fiscal capacity and upgraded infrastructure quickly.

As family planning was pushed hard and women's education levels kept rising, births in China began to slide after 1987. The birth rate fell from 23.33% all the way to 12.43%.

With a gap of one third already open, waiting for a baby boom from the universal two-child policy to grow up and carry urban development is far too distant a plan. The number of women at peak childbearing age is set to shrink by about 40% over the next decade, which means the young are likely to make up an even smaller share of the population.

Liang Jianzhang, founder of Trip.com Group, who has published demographic research papers, has written that a steadily aging and shrinking population will badly weaken the drive and vitality of Chinese cities. Urban infrastructure will go unrenewed for lack of demand and money, and large numbers of schools, hospitals, airports, ports and stations will have to close.

People also move toward opportunity. The young are drawn to places with more of it and better benefits, especially well-paid workers in technology and finance.

Young people pay more into social insurance, and what that means for a city's ability to keep its social-security system running hardly needs spelling out.

China's social-security money is split between the national and local level, under a fairly complicated allocation system. Take pensions. Put simply, the pension contributions taken out of our pay each month flow into a "fund pool," the basic pension insurance fund for enterprise employees. Each year retirees draw their pensions out of that pool, while people still working pay in, like a deposit. To refill the fund, the State Council announced last year a plan to transfer 10 trillion yuan from state-owned enterprises.

How much a local government collects through social insurance therefore decides how much it has to pay out for healthcare, pensions and the rest.

With the population aging and births falling, the young people who can put money into that pool have become a population no city can do without.

Bringing in whichever people are needed has always been the logic of those in charge.

This kind of scramble has happened before — with migrant workers.

In 2000 the central government issued Several Opinions on Promoting the Healthy Development of Small Towns, which let farmers in county-level cities and smaller towns convert their hukou to urban status if they wished, provided they had legal fixed housing and a stable job or income.

More reforms of small-town registration followed. In December 2009, the central government proposed making it a key task of urbanization to gradually settle qualifying rural migrants into jobs and household registration in towns and cities, and to loosen hukou limits in small and medium-sized cities and towns.

Individual cities followed with their own rules for migrant workers. Henan province issued its Guiding Opinions on Promoting Rural Residents' Registration in Cities in 2011, letting rural migrant workers who had worked continuously in Zhengzhou for two years register where they worked.

The logic is the same as with university graduates. Keeping farmers in town means more spending in small towns, and the meals, shopping and home purchases that follow raise local fiscal revenue.

The most direct effect is still on real estate

In this round of talent policies, second-tier cities are competing not only with first-tier cities but with third- and fourth-tier ones.

Not long ago, to ease the pressure that population growth put on jobs and infrastructure, second-tier cities made registration harder.

Nanjing brought in a Shanghai-style points system in December 2016, requiring graduates to accumulate 100 points on top of buying a home and working two years. Nanjing's soaring prices stopped rising around then, and for a while fell.

Xi'an started restricting purchases even earlier. From 2013 it enforced its Notice on Further Strengthening Regulation of the Real Estate Market, commonly called the purchase-restriction order, which stated plainly that people without a local hukou could buy only one home, and only after producing more than a year of local tax or social-insurance records; a second home was forbidden.

With inflows restricted and the government cracking down on developers who bought land and sat on it, second-tier cities saw both prices and transaction volumes fall over the two preceding years.

That is why last year's growth in Chinese housing prices and transactions came mostly from third- and fourth-tier cities — the main reason each of the country's three largest developers booked more than 500 billion yuan in sales.

E-House counted 32 second-tier cities whose share of housing floor space sold last year fell from 36% to 31%. Only third- and fourth-tier cities kept gaining: 600 of them climbed from 60% to a record 67%.

Chinese real estate began with speculation in new homes in first- and second-tier cities, then moved to resale transactions once new-home purchases were capped. After round upon round of this relay, new-home sales in first- and second-tier cities are falling, resale prices there are falling too, and the growth has landed in third- and fourth-tier cities.

Transaction volume decides whether the industry survives. Chinese developers depend on bank loans to keep the money flowing into new projects. When transactions drop, repayment pressure jumps.

Wind data shows that in 2017 the average debt ratio of 136 listed developers reached 79.1%, the highest since 2005. Of those 136, 67 — 49% — carried more than 10 billion yuan of debt.

Worry about second-tier housing markets, plus changes in land-development policy, made developers cautious. They stopped bidding land up to steep premiums.

In the second half of 2017, three residential parcels in Hefei went unsold because bids fell below the reserve price; in December, three parcels in Xi'an were cancelled for want of bidders. On December 12, three parcels in Changsha drew no bids at all.

According to the Tospur Research Institute, 86 residential parcels went unsold nationwide in the first 11 months of 2017, 41% more than the 61 unsold in the same period of 2016. Urumqi had the most, at 21, followed by Chongqing with 11.

For local governments, land sales and taxes on property transactions have always been a large share of revenue. Ministry of Finance figures show that land-transfer income nationwide has consistently accounted for more than half of local fiscal revenue in recent years. Pressure on developers passes straight through to city hall.

Letting eligible out-of-town graduates — even vocational school graduates — register directly and buy without restriction is, in effect, a direct stimulus to property transactions. Prices have moved visibly with the policies.

Nanjing is the clearest case. After it set out to clear housing inventory in late 2015, prices climbed fast month after month. The city then imposed purchase restrictions and, in February 2017, replaced the rule that let graduates register by buying a home with a stricter points system. Nanjing's price growth stopped abruptly in early 2017.

On March 8 this year, Nanjing announced a new talent policy: registering graduates would no longer be bound by the points system and could register before finding work. In April, transaction volume in Nanjing's housing market rose 17.6%, and prices turned upward after a year of decline.

Over this year's May Day holiday, the Ministry of Housing and Urban-Rural Development summoned officials from 12 cities over surging prices, Taiyuan, Chengdu, Harbin, Guiyang, Changchun, Foshan and Xi'an among them. A year earlier, the cities under the ministry's close watch were third- and fourth-tier, not second-tier.

In a climate where "homes are for living in, not for speculation" and purchase limits are not being loosened, eligible university graduates are becoming the new guarantee behind second-tier cities' property markets.

The young people cities pull in do not necessarily have to earn enough to buy a home themselves. Under China's "4-2-1" family structure, two generations of savings backing a young person's purchase is already common. The young people talent policies attract turn, in the end, into rising prices and transaction volumes. Developers get the money to keep running; governments get steady revenue.

Millions of young people have followed hastily written policies into second-tier cities. Whether the population plans cities usually draw up five or ten years in advance made room for them, and whether local schools and transport can carry a sudden surge — those look like questions for another day.

Charts: Wu Lingwei

Cover image: Ryoji Iwata on Unsplash