With its high-speed trains, acres of wind farms and 20-year plans to transform dozens of cities, China has won itself a reputation for addressing long-term challenges just at a time when western democracies appear mired in fractious disputes.

Yet there are some very large caveats to this can-do image, none more so than the government's halting efforts to reform the hukou system of residence permits that effectively treats people in rural areas as second-class citizens.

When China's Premier Wen Jiabao gives his annual “work report” to the National People's Congress today, one of the most closely watched issues will be what he has to say about getting rid of the hukou.

Mr Wen has given a number of hints in recent weeks that proposals are afoot, including saying during an online forum last weekend that hukou reform was one of his priorities. Meanwhile, the pressure from society is mounting, including a rare joint editorial in 13 newspapers on Monday which declared: “China has suffered under the bitter hukou system for too long!”

Hukou reform is to China what healthcare reform is in the US – an issue that everyone agrees should be addressed, but which is politically treacherous to push through. Beijing has been talking about hukou reform since the mid-1990s and the current administration under Mr Wen and President Hu Jintao has been pledging a big shake-up since 2004.

Yet some experts say progress has been glacial. “There has been little real reform in the Hu-Wen period,” said Ran Tao, a professor at Renmin University in Beijing. “They have never put in place a way to fund real reform.”

The system of obligatory residence permits was introduced in the 1950s to control internal migration. After the economy began to open up, farmers migrated to work in factories in cities, but without the crucial urban residence document, they are denied access to income-support payments, subsidised housing and most importantly, public schools for their children. Chinese intellectuals have long slammed the system as a form of segregation.

In recent years, there have been a number of small pilot projects that have experimented with reform in the cities of Chengdu, Chongqing and Wuhan and parts of Guangdong and Zhejiang provinces.

In some cases, the schemes have operated a swap where farmers have given up their land in return for a city hukou.

Chinese policymakers have recently been discussing proposals to accelerate such pilot projects. “Chongqing has been planning for more hukou reform for more than two years,” Ma Zhengqi, a vice-mayor of Chongqing, said this week. “This year there will definitely be a breakthrough.”

But observers say such proposals only begin to address the problem. For a start, these schemes usually apply only to rural residents who move to the nearest town or city where job opportunities might not be plentiful.

They do not include the tens of millions who have migrated from inland provinces to factory areas in southern China and around Shanghai.

Mr Ran says that such schemes have also sometimes provided an excuse for officials to push reluctant farmers off their land without paying a reasonable price.

The main stumbling block is financing urban social benefits for migrant workers. Beijing said in 2004 that migrant families should get access to city schools, but without any new revenue to pay for this, only a few cities such as Shanghai have implemented this policy. And after having borrowed heavily last year to pay for infrastructure projects, the finances of local governments are even more stretched than before.

Government officials have discussed for a number of years the introduction of a property tax, which would provide a stable source of income for local governments to pay for migrants' benefits. But they are afraid that the announcement of such a tax would lead to a property market collapse.

As a result, scholars expect a gradual roll-out of localised taxes on property, city by city, to help fund reforms to the hukou system over a period of a decade or more.

“The government will have to deal with this issue step by step, gradually letting the system fade away. That is the safest way to handle it,” said Pu Yongj-ian, an economics professor at Chongqing University.