China should speed up reform of its household registration and land-use systems to offset the impact of the trade war with the United States by encouraging the free flow of capital and labour, an outspoken former Chinese finance minister said. China’s decades-old hukou registration system , which divides the population into rural and urban citizens, and its rigid collective land-ownership model have long been criticised for dragging on economic growth and exacerbating the country’s urban-rural divide. But Beijing has so far been reluctant to make major changes to the policies. In an article published on Tuesday, Lou Jiwei, who led China’s Ministry of Finance between 2013 and 2016, urged the central government to undertake rapid reform of the two systems in the face of rising populism and anti-globalisation. “The current household registration system [in China] is a significant and unreasonable institutional problem,” Lou wrote in an article published by the economic magazine Comparative Studies . The defects of the two fundamental systems have caused a series of economic, social and political problems … it is really time for us to solve them Lou Jiwei The former minister also argued that China’s restrictive rural land-ownership model was a legacy of China’s command economy and that it segregated the countryside from urban areas, preventing Beijing from developing a unified “socialist market economy” with free flows of labour and capital. “The defects of the two fundamental systems have caused a series of economic, social and political problems … it is really time for us to solve them,” said Lou, who is now director of the foreign affairs committee of the Chinese People’s Political Consultative Conference (CPPCC), a key government advisory body. Lou’s remarks were published as hundreds of top Communist Party leaders gathered in Beijing this week to discuss governance as part of the fourth plenary session , an annual policy setting conference. The meeting comes amid increasing calls from inside China to deepen economic and social reforms and further open up its market in a bid to support a slowing economy. Lou is famous for being one of the most outspoken reformist officials in China. Earlier this year he also said the government’s “Made in China 2025” industrial policy was a waste of taxpayers’ money. Critics have long described China’s hukou system as a form of internal passport that limits freedom of movement and has stalled urbanisation. Under the system, rural migrant workers cannot access services such as education and health care in cities, meaning they and their families must return to their hometowns or regions to do so. This has stopped many rural residents from moving to urban areas or forced them to move back to their home villages as China’s economic growth has slowed to its lowest rate in decades. The flow of migrants seeking industrial jobs in cities has declined substantially, Lou said, resulting in a shortage of workers at a time when the nation’s overall labour force was shrinking. Slower-than-expected land and hukou reforms were among the major risks facing China’s urbanisation and economic growth, Morgan Stanley economists lead by Robin Xing said in a note on October 15. A number of local governments have taken steps to relax hukou restrictions, as sluggish population growth and fewer rural labourers seeking work in urban areas had put pressure on fiscal revenue and economic momentum in some small and medium-sized Chinese cities. The southern province of Hainan announced last week it would remove hukou restrictions and abolish the distinction between agricultural and non-agricultural households. That came after the National Development and Reform Commission, the country’s top economic planning agency, called on small and medium-sized cities to relax hukou restrictions to provide an incentive for 100 million migrants to move to cities by 2020. But there is still some reluctance among policymakers in China’s bigger cities like Shanghai or Beijing, who fear that easing hukou restrictions would lead to an influx of rural migrant workers that would burden public services. Lou said China’s land-use system posed an even bigger problem for the economy. Under existing laws, individuals cannot own rural land because it is owned by collectives. Farmers have a right to sign long-term leases and build on the land, but they must transfer the land back to collectives without compensation if they move to an urban area. Because of the difficulties involved in moving to cities, many rural migrants hold onto their homesteads as a fallback plan. “Relevant information shows that at least one-quarter of homesteads in underdeveloped [rural] areas have been abandoned, a huge waste of valuable land,” Lou wrote. China should transfer rural land ownership from local collectives to the state – mirroring the scheme for urban land – and allow farmers to freely transfer the rights to build on their land, Lou added. China’s current rural land-use system was adopted in the early 1980s, but it now seen as a hindrance to consolidation of small farms into larger, more productive industrial agricultural units – a problem highlighted by the battle over soybean imports amid the US-China trade war. Yang Baolong, president of China Soybean Association, said in August that China needed a “revolution in the collective ownership of rural land”. In August, China revised a land administration law to give farmers more property rights, improve the transparency of rural land acquisitions and extend the duration of farm leases for another 30 years from 2027. Still, some observers say there is more work to be done to reduce inefficiency and ramp up development. “Many idle or inefficiently used homesteads are still zombie assets that could delay urbanisation and large-scale farming to a certain extent,” Liu Zhengshan, deputy director of China strategy and policy research at the Dongbei University of Finance and Economics, wrote after the new law was passed.