China's hukou system is a legal document that records and contains the household population's basic information, including the date of birth, name of the natural person, marital status, and relatives. It's a vital identification document for Chinese citizens that has various government uses. The hukou system's primary functions include preserving social stability, managing social protection, and controlling internal migration.

Impact of the hukou system on employers in China

The household registration (hukou) system has several benefits and directly impacts foreign and local citizens residing and working in China. In a free market, employers are hardly concerned about the candidate's location, relocation expenses, or even the difficulties of adjusting to a new place. However, these aspects are not taken lightly in China, and employers are often concerned about the welfare of the employee they want to recruit in their organizations. Often, candidates and employers in china face bureaucratic challenges through the hukou system since it's sometimes seen to undermine worker mobility.

However, compensation policies by various respective companies and new governmental reforms tend to resolve some of these challenges when recruiting and hiring for the various roles in China.

• Compensation policies by companies

Chinese companies mainly offer help to their employees when acquiring an urban hukou or household registration. This process in the social welfare system helps the Chinese companies to attract the most qualified and best candidate for a particular job opportunity. In addition, companies or organizations that offer household registration documents are often involved in taking up the responsibility for the employee's hukou conversion. Offering this benefit allows organizations to retain more skilled employees in the long term and obtain leverage in contract negotiations.

• Talent incentive

China's local state governments have recently been accorded more control over their regions concerning hukou eligibility, conversion, and quotas. As a result, the large cities have come up with more restrictive measures and criteria for granting residents a hukou, with the aim to control the population size in these regions. The large cities, including Shanghai, Beijing, Shenzhen, and Guangzhou, use a point-based system to evaluate whether an applicant meets the required and desired criteria. Factors influencing a person's point-based system include employment type, property ownership, legal record, and education.

Advantages of the government-issued hukou

An urban hukou system has numerous benefits since it can offer most urban households access to food, housing, and other necessities based on their financial status. Despite the various challenges, the hukou system remains vital for accessing education from the best universities, employment, and granting an individual the ability to purchase real estate property in urban areas. Some of the other benefits that came from the government-issued hukou system include:

• Retirement allowances

• Unemployment insurance

• Health insurance

• Maternity insurance

• Housing funds mainly provided by the employer

• Work insurance

Conclusion

One of the main objectives of the hukou system is to control internal migration. In addition, the system was meant to create a sense of social order and protect the rights of Chinese citizens. The challenges presented for worker mobility can present difficulties to employers, but also create opportunities to help attract talent if they are able to help with a new employee’s hukou status.

Expand into China without setting up a company, by employing or relocating key staff to take a first step in exploring the market. A professional employer organization (PEO) service can act as the official employer of record (EOR) for your staff in China while you expand your business. With the support of our trusted partner network, we can facilitate local hiring and employment without the time and cost of setting up a legal entity in country.

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