(Beijing) — Lei Yue, from the eastern province of Shandong, still believes he made the right job decision last fall, when he chose a state-owned enterprise (SOE) in Beijing over a multinational, also in the capital.

The deciding factor was that the state firm could also guarantee him a sought-after Beijing hukou — a coveted household registration document.

“I was telling myself that I must have a hukou in Beijing no matter whatever other opportunities I might have to miss,” said Lei, who graduated with a master’s in business administration last year from Beijing Technology and Business University.

“It’s just too important to let go because you need it either to buy a home here or to get your children into a public school in Beijing.”

But the 27-year old fled the SOE for a private firm just nine months later because he said the job was a total waste of time.

Lei said he was given the title of “investment specialist” and assigned to draft speeches for supervisors and internal memos. The work took only three hours a day and left him with nothing to do for the rest of his shift.

“I was motivated so little by the job that I often came to work late before I quit,” he said.

Lei was able to keep his Beijing hukou and settle permanently in the Chinese capital. But he had to pay the company 50,000 yuan ($7,200), a substantial amount for a college graduate, because he did not stay on the job for the three years he had pledged in return for the job and hukou.

Lei is one of the many bright students who face the tough decision of whether to pursue a hukou in a big city or a desirable position in their chosen careers.

Chen Lin, 25, who graduated with a master’s degree in information technology from Tsinghua University earlier this year, turned down a product manager job offered by a private company even though he said he really liked the opportunity.

Instead, the native of the southwestern municipality of Chongqing signed a six-year contract with a small newspaper in Beijing affiliated with a central government agency, even though he has no qualifications in journalism, so he could get the hukou.

Chen said he had sent out nearly 200 job applications and received several job offers, including from Baidu Inc. and LeEco, over the past year. But none offered him a guaranteed Beijing hukou except the government-run newspaper.

“This could be my last shot at a hukou in Beijing, and nothing else matters as much,” he said.

But he said he still has a heart-wrenching feeling every time he thinks of the 16,000 yuan a month he was offered at the end of his probation at the private company — triple the amount he earns now.

The household registration system, which has been around for decades, does not have the importance it once did as a social apparatus to prevent people from moving from rural to urban areas or from small to large cities. But a hukou is still an important way to receive certain social benefits.

Migrant workers, including laborer and skilled professionals without a hukou in Beijing, face restrictions when it comes to access to basic public services, such as public schools for their children, and even home and motor-vehicle purchases.

Migrant workers without a hukou need to prove they work and live in Beijing for five years in order to qualify to buy a home, and migrant families are limited to one home in the Chinese capital.

Government agencies, SOEs and a handful of high-tech firms are given a certain quota of hukou each year to attract top talent and hire newly graduated students on top of some reserved for family reunions.

Amid worsening pollution and traffic woes, authorities in some top-tier cities such as Beijing and Shanghai have moved to tighten control of the system aimed to curb the migrant population.

Zhang Zude, a deputy director of Beijing Municipal Human Resources and Social Security, said in September 2015 that Beijing capped the number of hukou for newly graduated college students at 9,000 in 2015, and the number for 2016 could only get smaller. Several companies that are allocated quotas told Caixin that they have cut their quota by 30% to 40% in 2016 — as ordered.

An employee at the human resources department of the R&D center affiliated with a top IT firm in Beijing said her company had its quota cut by a third, barely enough for new hires with a doctorate. The benefit is no longer accessible to those only with a master’s or bachelor’s degree.

A hukou has become so sought-after that it has spawned an underground market.

A Beijing man was sentenced to three years in prison late in October for making 3 million yuan in illicit dealings for hukou in collusion with 15 employees at state-owned and high-tech firms that have hukou quotas.

Their main clients were recent university graduates, including former students of top schools such as Peking and Tsinghua universities, a court document shows.

Over three-fourths of the students who graduated from Tsinghua University in 2014 found jobs at government agencies, government-affiliated institutions, such as state-run media outlets, and SOEs — most of which can provide them with a hukou, according to a study by Renmin University professor Sun Wenkai and Tsinghua University associate professor Guo Qian.

However, the study also shows that over 60% of the Tsinghua graduates who have obtained a Beijing hukou by landing a job with governments and state firms said they are not happy with their salaries.

“They take usually low-paid jobs at government agencies and state-owned companies as a trade-off for a hukou,” said Ma Liping, an associate professor of education at Peking University who led a separate study.

The majority of college graduates who are able to get a Beijing hukou have a master’s or doctorate degree and are in the top 25% in their class, the study shows.

Yuan Xiao who worked in the human resource department at a government-affiliated institution, said they receive numerous applications from students who graduated from top Chinese universities and even some Ivy League universities in the U.S. because his company could also offer them a hukou.

“But nearly half of the positions could be easily filled by those with a high school diploma or a college certificate,” he said.

Many students who secured a Beijing hukou usually quit within two or three years, Yuan said.

Chen — the graduate who turned down the tech job for a Beijing hukou — said he has little interest in news writing, editing or the layout he is required to do at the newspaper.

“I’m not sure how long I have to stay, but I definitely do not want to stay for six full years,” he said.

To get ready for his next job, he tries to keep updated on the latest developments in his chosen field, IT, in his spare time.

Lei, the MBA student who took a job he didn’t want to get the Beijing hukou, then paid a stiff fine when he quit early, said he now earns twice as much as he used to get at the SOE and is even thinking of buying a house in Beijing.

The hukou quota system, which favors state entities, is terribly flawed because it will lead to a waste of human resources while failing to help them attract talent, he said.

“Those companies with hukou quotas certainly need more than a household registration paper to win over highly qualified graduates,” he said.

Contact reporter Li Rongde (rongdeli@caixin.com); editor Ken Howe (kennethhowe@caixin.com)