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Sign up with Google Sign up with FacebookHukou is basically a resident permit issued by the Chinese government on a family basis.
Every family have one Hukou booklet which contains the following information about the members of a family such as name, birth date, relationship with each other, address, employer.
For instance, in Shanghai, if you don't have the Shanghainese hukou, a family is not entitled to some benefits offered to family, elderly or children.
In big cities, such as Shanghai, Beijing, etc, if you don't hold the hukou of the city, you're basically considered a second base Chinese.
Sangoku above posted a really good and thorough answer to this question. It is one of the major problems that migrant workers have in officially changing their place of residence from the countryside to the major cities. The government, however, has been implementing changes in regard, particularly in Chongqing, and in Shanghai, and a few other cities, to make the transfer of the hukou slightly less complicated and less onerous.
The Huckou Booklet is issued to a family unit at the location where they live. As life goes by, all events are recorded there. It is used in a way as a mean of control, and also to hold down on migration from farms to cities in a way. If you want some type of services in a city where your Huckou is not issued, you may be denied those services.
It is very important in Chinese way of life. But one thing is not clear in my mind yet, when does a son or daughter ceases to be included in baba and mama's booklet, and gets one of their own?. I do know a married couple, with children, who are still included in their parents booklet and do not have one of their own.