Can AI and Hukou Reform Save China's 301 Million Migrant Workers—and Its 2035 Growth Target?

China's ambition to double its GDP per capita from 2020 levels by 2035—the benchmark for becoming a "moderately developed" country—hinges on a single overlooked variable: what happens to its 301.15 million migrant workers.

These workers, who hold rural hukou registration while working in cities, represent over 40% of China's labor force . They are overwhelmingly employed in low-productivity agriculture and informal urban services—precisely the sectors that form the lower arm of China's K-shaped economy. Whether they can transition into higher-productivity formal employment, and whether AI-driven productivity gains reach their jobs, will determine if China's K-shaped divergence narrows or widens by 2035.

The structural arithmetic of the migrant worker challenge

China's migrant worker population reached 301.15 million in 2025, up 1.42 million from 2024 . Their average monthly income was 5,075 yuan (about $739) in 2025, with those working outside their hometowns earning 5,774 yuan . But the hukou system restricts their access to urban public services—healthcare, education, and housing—suppressing their consumption and long-term urban integration .

The productivity gap is stark. Agriculture still employs roughly 22% of China's workforce but generates only about 7% of GDP, implying productivity well below one-third of the economy-wide average . Reallocating even a fraction of this labor into higher-productivity urban sectors would deliver a large one-off boost to aggregate output.

DBS's Solow growth model projects average annual GDP growth slowing to around 3.7% from 2025–2030 and 3.0% from 2030–2035, driven primarily by AI and automation offsets to a declining working-age population . PwC notes China's 2035 goal is anchored in a record fiscal support framework, but growth momentum has already moderated—from 5.0% in 2024 to an estimated 4.9% in 2025 and a projected 4.4% in 2026 . Hitting the doubling target requires average annual growth of about 4.7% through 2035 .

The K-shaped divergence is the core problem

China's economy is defined by a structural K-shaped divergence: AI and high-tech manufacturing are the booming upper arm, while household consumption and traditional sectors are the stagnating lower arm . Citi's mid-2026 analysis finds that China's "AI supercycle" is reinforcing the strong side—boosting production, exports, and high-tech investment—while benefits to household demand remain limited and likely isolated rather than diffuse .

The Politburo's August 2025 "AI Plus" directive explicitly aims to accelerate AI adoption across all industries, but initial implementation is heavily weighted toward manufacturing and state-backed R&D rather than consumer services or agriculture . The 15th Five-Year Plan, released in March 2026, mentions AI more than 50 times and includes a sweeping "AI+ action plan," with specific measures including experimenting with robots to perform jobs in sectors suffering from labor shortages .

Three migrant employment scenarios for 2035

Scenario 1: Hukou reform + broad AI diffusion (high convergence). Under this path, the May 2026 hukou reforms that improve migrant access to urban public services accelerate . Migrants move more permanently into cities, their consumption rises toward urban averages, and AI tools spread into retail, logistics, hospitality, and precision agriculture—the sectors where most migrants are employed. This would raise productivity in the lower half of the K-shaped economy, broaden the tax base, and generate the domestic demand needed to sustain ~4.5–5.0% growth. China would likely meet the 2035 doubling target.

Scenario 2: Partial reform with AI concentrated in high-tech (persistent K-shape). Hukou reform proceeds incrementally; migrants remain temporary, remit earnings to rural areas, and consume at depressed rates. AI deployment stays focused on export-oriented advanced manufacturing, semiconductors, and energy—the "upper arm" sectors identified by Citi, KPMG, and CCPIT . Productivity in migrant-intensive services and agriculture stagnates. The economy grows at 3.5–4.0% annually, the K-shape persists or widens, and the 2035 doubling target is missed by a meaningful margin. This is arguably the current trajectory.

Scenario 3: Automation displacement without reallocation (divergence). AI deployment rapidly automates routine manufacturing and service jobs that migrants currently hold, but the hukou system and skills mismatches prevent re-employment into new sectors. Migrant unemployment rises—the surveyed urban unemployment rate for migrant workers was already 4.7% in 2025 . Rural-to-urban labor reallocation reverses. Productivity gains in high-tech coexist with falling labor-force participation and suppressed aggregate demand. Growth falls below 3.5%, and the 2035 target becomes unattainable.

What the evidence suggests about the likely path

The strongest available evidence points toward Scenario 2 as the most probable outcome. The K-shaped divergence is described by multiple sources as the defining structural feature of China's current economy, not a short-term fluctuation . The AI supercycle is reinforcing rather than correcting this imbalance . About 165 million migrants have already settled in cities and obtained permanent residency over the past decade , but the pace is gradual, and full urban integration for 301 million people remains years away.

Key uncertainties that could shift the outcome:

• Fiscal capacity for social services. City governments, already burdened by local debt—which Tsinghua's David Daokui Li identifies as "the real drag" on the economy —must absorb the cost of extending education, healthcare, and housing to millions of new urban residents.
• AI's labor-substitution vs. labor-complement effects in services. If AI primarily automates low-skill tasks, displacement dominates; if it creates new roles in logistics, last-mile delivery, and platform-enabled services (as China's digital economy has done), complementarity dominates.
• Agricultural productivity modernization. China has been investing in "new quality agricultural productive forces"—biological breeding, precision farming, and agri-tech—and the sector's output grew at an average of 4.9% annually from 2021–2025 , still far below the pace needed to close the productivity gap with high-tech sectors.

Bottom line

China's 2035 GDP-doubling target is achievable only if the 301 million migrant workers can transition from low-productivity agriculture and informal urban work into higher-productivity formal employment—and consume at urban rates. The current K-shaped pattern, in which AI-driven gains accrue to high-tech sectors while consumption and migrant-heavy services lag, is the most serious threat to that transition. The hukou reforms of 2025–2026 are a necessary but insufficient condition; the decisive variable is whether China's "AI Plus" strategy reaches the service-sector and agricultural jobs where migrants actually work, or remains a high-tech industrial policy in disguise. On the evidence available, the K-shaped divergence is more likely to narrow slowly than to close entirely by 2035, putting the doubling target at significant—but not insurmountable—risk.