Changes to hukou system to help mid-size cities development

China's recent announcement on changes to the existing residency registration system, or hukou, will support a more stable development of mid-sized cities in the country, as well as the housing market, said research from Fitch Ratings, a leading global rating agency.

The government's objective is to ease population and housing pressure in Tier-1 and larger Tier-2 cities. The new policy reduces the risks of a sharp downturn in the nationwide housing market in the near to medium term, Fitch said.

The National Development and Reform Commission announced on Monday that cities with an urban district population of between 1 and 3 million should scrap hukou restrictions, and that cities of between 3 and 5 million should ease the requirements substantially for hukou qualification.

Cities with a population of below 1 million had already removed the restrictions prior to 2018.

The authority has stepped up efforts to achieve an urbanization rate - measured by the hukou population as a percentage of total population, to above 45 percent by 2020.

In China, the hukou urbanization rate was 43.4 percent in 2018, while the resident urbanization rate had already reached 59.6 percent, according to the National Statistics Bureau.

Fitch believes that the cities benefitting the most from the action are mainly growing cities surrounding provincial capital cities, and most Tier-3 cities in the Yangtze River Delta region and Greater Bay Area.

"These Tier 3 cities will become more attractive to a skilled population which has spilled over from the provincial capitals, and who are key to improving the demographic structure and with sustainable economic growth," the rating agency said.

The continuing industrialization of these cities also is supported by the large population concentration. The additional demand is likely to bolster property demand and partially offset the loss of demand from the slowdown in shantytown redevelopment plans, it added.