This is not actually true. Beijing has a massive underclass of people living illegally because they don't have internal passports that allow them to live in a city. This let's the city have the benefit of their labor while being able to crack down harshly and jail/deport whenever. They also don't provide any social services for these people (trash pickup, school, medical). So that's why many people who you might otherwise have seen were staying out of sight in the rich areas.

If you want to read more, the Chinese system of inherited internal passports is called hukou.

Thanks for the info. Maybe the explanation was dumbed down for a foreigner.