The city introduced the system in 1994 to give people from out of town a chance to gain permanent-resident status if they had bought property in Shanghai, made investments locally or been recruited by local firms because their skills were needed. Once they earned their "hukou," they could enjoy the same privileges as other local residents.

But "the number of applicants in recent years has gotten out of control and put pressure on the city's efforts to control the population, so the city government has decided to abandon the system," the municipality said in a statement. The statement nevertheless emphasized that the system had contributed significantly to the city's development in recent years, especially the flourishing property market.

Any property contracts signed before April 1 will be considered valid, according to city officials.

"This (discontinuation of the residency permit system) is a positive step for the sake of managing and controling the city's population, which is now a bit larger than we had expected," said Sha Shencai, director of the Planning Department under the Shanghai Population and Family Planning Committee.

"Shanghai actually needs migrant people regardless of their level of education," said Sha. "We've found that 2 million migrants is reasonable as far as maintaining the labor force is concerned." That number, however, had climbed to 3.06 million by the last census in 2000.

"To regulate and control the population of the city is a difficult task," said Sha.

The Shanghai Personnel Bureau plans to introduce a flexible new Shanghai Resident Card system later this year specifically designed to accommodate skilled workers wishing to gain residential status.

Cardholders will be able to have their residence registered outside Shanghai and still enjoy all the benefits of a Shanghai resident while they are working or doing research in the city.

It will be issued to a selected talent pool comprising people from other parts of China. Overseas Chinese, whether green-card holders or permanent residents, and foreign citizens will also be eligible.

"I think some properties around the city's outskirts may feel an impact since most of their preferred customers are 'blue-cover hukou' holders," said Kitty Tan, senior manager of the research department at FPD Savills, an international property consulting company.

(eastday.com April 2, 2002)