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Two migrant workers rest in the shade in Beijing. Migrants must have a residency permit to access the city’s cheap health care.Alexander F. Yuan/The Associated Press

Just over two years ago, Sun Shun-Qiong packed up and left her two small daughters at home with her parents in Hubei province for life in the big city.

Today, the 27-year-old saves as much as she can from her monthly earnings of 4,000 yuan ($638) as a shop assistant to send to her family, seeing them just three times a year. She has dreamed of bringing her children, now three and five, to join her. But without a Beijing residency permit, or hukou, that gives her children access to public education and health care, the costs are prohibitive.

"My parents save most of what I send home for my children," she said. "I considered bringing them here, but Beijing is too expensive, a good kindergarten is at least 2,000 yuan a month."

As China's economic growth slows, Ms. Sun and the 168.7 million other migrant workers like her represent an entire strata of society who will become key in stabilizing the economy. Policy makers are anxious to rebalance China's economy away from export industries, in the face of a global slowdown, by boosting household spending.

With China's population aging and factories experiencing labour shortages, migrant workers are seeing their earning power climb. Recently released data showed their incomes have risen an average of 13 per cent in the first nine months of this year alone from the same period last year.

At issue, however, in unlocking this potential is China's hukou residency system. All migrant workers must either return to their hometowns for state-sponsored health care and education for their children, or pay exorbitant costs for access in their city of work.

The result is a next generation growing up in the care of elderly grandparents and a young, working population forced to save a great percentage of their income in case of health or employment crises.

A Chinese government commission recently took the rare step of urging authorities to grant migrants permanent residency status in the cities, with full rights to public services, to free more of their income and allow them to play a greater role in spending China's economy out of the doldrums.

"Giving the migrant population living in cities permanent status and giving them equal access to fundamental public services would greatly stimulate China's consumption growth," the National Population and Family Planning Commission said in its annual report.

It's a view shared by the Chinese Academy of Social Sciences. "I totally agree that if migrant workers can be better covered by social security and settled in cities as citizens, they [would] consume more. Since they are a sizable group, they can contribute a great deal to domestic consumption," said Cai Fang, a specialist in labour economics at CASS.

But Chinese municipalities worry that introducing freedom of movement would increase the burden on already stretched hospitals, roads, housing, sewage and public transport.

Although China's population is aging, the number of migrant workers is expected to rise as more people leave rural areas for the cities; China is expected to have some 250 million migrant workers by 2015. An overwhelming majority of those have inadequate access to social services.

"I think the relaxation of the hukou system around China is very important, and it's very easy for China. It has a lot of benefits," said Heleen Mees, a Dutch economist teaching at New York University who has studied the role of the high savings rate in China in the 2008 financial crisis.

Along with fuelling consumption, she said, such a move could strengthen China's service economy, moving the focus away from low-end, heavily polluting manufacturing for export.

"The collapse of exports only reinforces the point that China will have to find its internal growth engine because they can't rely on the U.S., they can't rely on Europe," she said.

However Prof. Cai argues that the local costs are not as great as feared, since in most cases the workers are already using public transport and local services, and as a young and mobile population they are less likely to be a drain on the health care system.

He also believes the political will to tackle the issue is increasing, in the lead-up to this fall's expected Communist Party Congress which begins a major transfer of power from President Hu Jintao, Premier Wen Jiabao and the current Standing Committee, which serves as an appointed cabinet.

"In terms of social security coverage, migrants are young and will be net contributors in many years, which will support the current pay-as-you-go-type pension program," Prof. Cai said. "More generally, migrants make the urban population younger and the urban dependence ratio lower, thus they tend to fill up many gaps other than posing burdens. Of course, that requires sound institutional arrangement [and] reforms."

The case of Ai Long, 21, a young tailor working in an east Beijing shopping centre, illustrates what can be gained by loosening the residency restrictions. A second-generation migrant worker (his parents are from Anhui province but raised him largely in Beijing), he initially shrugs when asked how much difference a Beijing hukou would make.

"I'm healthy, I rarely go to the hospital," he said. "My parents are prepared, for my marriage and everything."

But as Mr. Ai talks, the costs become clear: His parents have saved thousands of yuan for emergencies and have bought an apartment in the Anhui provincial capital of Hefei rather than in Beijing, where they are not permitted to own property. He has a girlfriend and hopes to marry, but under current rules his wife would have to pay high fees to give birth to a child here, and his children would have difficulty getting into schools.

"If you have a hukou here, it's definitely better than to have the one back home," he concedes.

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