The Communist Party came to power in the late 1940s and instigated a command economy. In 1958, Mao set up a residency permit system defining where people could work, and classified an individual as a "rural" or "urban" worker. A worker seeking to move from the country to an urban area to take up non-agricultural work would have to apply through the relevant bureaucracies. The number of workers allowed to make such moves was tightly controlled. People who worked outside their authorized domain or geographical area would not qualify for grain rations, employer-provided housing, or health care. There were controls over education, employment, marriage and so on. One reason cited for instituting this system was to prevent the possible chaos caused by the predictable large-scale urbanization. As a part of the one country, two systems policy proposed by Deng Xiaoping and accepted by the British and Portuguese governments, the special administrative regions of Hong Kong and Macao retained separate border control and immigration policies with the rest of the PRC. Chinese citizens had to gain permission from the government before travelling to Hong Kong or Macau, but this requirement was abolished after the handover. Since then, restrictions imposed by the SAR governments have been the limiting factor on travel.
The Washington Times reported in 2000 that although migrant labourers play an important part in spreading wealth in Chinese villages, they are treated "like second-class citizens by a system so discriminatory that it has been likened to apartheid." Anita Chan also posits that China's household registration and temporary residence permit system has created a situation analogous to the passbook system in South Africa which was designed to regulate the supply of cheap labor. In 2000, the Tibetan Centre for Human Rights and Democracy has alleged that people of Han descent in Tibet have a far easier time acquiring the necessary permits to live in urban areas than ethnic Tibetans do.
Abolition of this policy was proposed in 11 provinces, mainly along the developed eastern coast. The law has already been changed such that migrant workers no longer face summary arrest, after a widely publicised incident in 2003, when a university-educated migrant died in Guangdong province. The Beijing law lecturer who exposed the incident said it spelt the end of the hukou system: in most smaller cities, the system has been abandoned; it has "almost lost its function" in big cities like Beijing and Shanghai.