China’s economic miracle over the past four decades—characterized by a 9 percent average annual GDP growth rate and a tenfold rise in wages—was not driven by invisible free-market hands or state-directed magic, but by the systemic exploitation of hundreds of millions of domestic migrant workers, according to an analysis published by Red Flag.
The Assembly of a Migrant Workforce
History has no parallel for modern China’s economic transformation, during which more high-speed rail was built in ten years than the rest of the world combined in all time. While globalization enthusiasts once attributed this growth to free markets and trade, and others point to state-directed investment or dictatorship, these perspectives overlook the real wealth creators: the working class. Economic value comes from everyday hands.
Beginning in the 1990s, profit-hungry foreign capital collided with millions of bureaucrats and a repressive state machine to assemble the largest wage-labor force in history. Three hundred million people left rural poverty for cities. Simultaneously, urban workers in state-owned mines and mills lost their livelihoods through rapid privatization. Red Flag reported that China’s working class is legally stratified into migrant and resident categories, subjected to strict managerial control and deprived of the right to unionize. With hundreds of billions in Western and Taiwanese investments, this dynamic fueled the fastest economic growth in capitalist history.
The Architecture of the Hukou System
Internal migration has been the backbone of China’s boom. In the 1990s, the government lured young villagers to newly established Special Economic Zones featuring low wages and minimal taxes. Workers like Lu Qingmin moved to manufacturing hubs in the Pearl River Delta, enduring shifts stretching from eight in the morning until midnight in factories such as a Hong Kong-owned alarm clock facility.
Every migrant carried their rural hukou, a household registration system originally designed under Mao Zedong in 1958 to ban rural-to-urban movement. Repurposed decades later, the system created a pliant, defenseless workforce with second-class citizenship. The “floating population” now represents just under half of China’s workforce. Registered to distant villages, these workers are denied local health insurance and pensions, barred from buying property in many cities, and forced to pay high fees for their children’s education.
Because children inherit their parents’ hukou regardless of their birthplace, tens of millions of “left-behind” children grow up in the countryside with grandparents. While the first generation of migrant workers viewed themselves as itinerant farmers, and the second identified as wage laborers, the third generation feels urban native-born, save for the jarring legal barrier of their registration.
Efforts to reform the system face steep hurdles. Local governments save vast sums by denying public services to non-residents, and deep reforms would drive up business costs and threaten China’s export-driven model. As labor academic Eli Friedman noted in response to statements by the State Council, deep hukou abolition entails profound fiscal and social restructuring that has been quietly opposed and diluted across decades.
Migrant Workers Face Eviction from Urban Villages
Despite official figures citing high home ownership rates, between half and two-thirds of China’s migrant population rent homes far from their family properties. Many live in “urban villages”—informally subdivided dwellings in former rural outskirts now swallowed by expanding cities. Operating in a legal gray zone, these neighborhoods face constant threats of sudden eviction and demolition to make way for commercial developments.
In Beijing, municipal authorities launched aggressive eviction campaigns targeting underground renters and cellar dwellers, particularly after a deadly fire killed nineteen people in 2017. The sweep displaced roughly 120,000 migrants, leaving many to sleep outdoors during the northern winter without alternative housing provided in the city’s luxury developments.
The factory dormitory system further enables companies to extend working hours and monitor employees closely, though it restricts family life and privacy. These cramped conditions have occasionally ignited severe labor friction, such as a ten-day strike in April 2014 involving 40,000 workers at the Yue Yuen shoe factory after employees discovered management had failed to pay into social insurance schemes.
Poverty Reduction Versus Wealth Inequality
Defenders of China’s political model frequently point to the lifting of 800 million people out of absolute poverty as proof of success. While wages and living standards have undoubtedly risen over the past three decades—with young workers earning multiples of rural farming income—this industrialization mirrored patterns observed by Karl Marx in Capital.
Absolute poverty is a low statistical bar, and remittances sent back to rural families performed much of the heavy lifting. Meanwhile, industrialization converted rural deprivation into highly profitable urban wage labor. Business profits and capital investment far outpaced wage growth. A 2022 report by China’s Ministry of Finance and the World Bank found that the country’s Gini coefficient—a measure of income inequality—skyrocketed from 0.30 in the mid-1980s to 0.49 in 2008, surpassing the level recorded in the United States.
| Metric | Mid-1980s | 2008 Data |
|---|---|---|
| China Gini Coefficient | 0.30 | 0.49 |
| SEEs Privatized (1990–2002) | – | Approx. 70% |
Simultaneously, the restructuring of state-owned enterprises (SOEs) between 1990 and 2002 saw roughly 70 percent of state firms privatized or partially sold off, displacing 60 million workers. These mass layoffs served as a powerful economic lever to enforce workplace compliance. As distillery worker Fan Wendong wrote in My Twenty Years in a State Enterprise, workers never held democratic control over their factories, leaving managerial power entirely out of reach as the boom years eventually gave way to economic slowdown.
