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11Impacts of Internal Migration on EconomicGrowth and Urban Development in ChinaCai FangWang DewenInstitute of Population and Labour Economics, CASS1. IntroductionThe massive population flow from rural to urban areas in post-reform Chinais the result of both institutional and structural changes caused by economicgrowth. In the planned economy, China had a household registration system(hukou system) which was designed to control population migration andlabor mobility between rural and urban areas as well as across regions. Theissuing of Regulations on Household Registration of the People’s Republicof China in 1958 marked the beginning of the formal establishment of thehukou system. Public security bureaus controlled place-to-place migration,and it was almost impossible to move from a rural to an urban area withoutauthorized plans or official agreement. Departments of labor and personneladministration controlled the transfer of labor across economic sectors andthere was no free labor market at all.The hukou system was designed to promote the development of heavyindustry, a high priority at the time, and to speed up industrializationgenerally. In order to accumulate capital for investment, the system keptthe rural labor force in agricultural sectors. It also limited the number ofpeople who had access to low-priced food, guaranteed non-agriculturalemployment, and subsidized urban housing social benefits, such as basicsocial security and subsidized public services (education, health care,transportation, and so on).Since market-oriented reforms were instituted, controls over labormobility have been gradually relaxed. The introduction of the HouseholdResponsibility System (HRS) in the early 1980s allowed farmers to earnincome based on effort, thus solving the long-standing incentive problemassociated with the egalitarian compensation of the commune system(Meng 2000). At the same time, the price paid by the state for agriculturalproducts was raised, stimulating an increase in agricultural productivityand releasing surplus laborers from agriculture. The higher returns tolabor in non-agricultural sectors also motivated farmers to migrate out of245