I talked to Kevin Hamlin of Bloomberg recently about urbanization; Kevin's big story is out and he was kind enough to quote me. The piece is about the debate among China scholars over the best strategy for urbanization. While we may think of urbanization as a natural process, government policy plays a big role in China given the institutional restrictions on urbanization through the hukou system, and heavy state involvement in urban planning and investment. China's policy over the last decade or so has been to favor a "distributed" model of urbanization that tries to encourage population flows to smaller cities, and reduce the concentration in megacities. I think the most charitable explanation for this choice is that they want to distribute the economic gains from urbanization more widely across the country. The justification you hear more often is that big cities are too big and crowded and just can't get any bigger; it is hard to be charitable about this view, since it seems to put a higher priority on the people who already live in Beijing and Shanghai and earn high incomes than on the people who don't live in Beijing and Shanghai and don't earn such high incomes.
My view, which I think is shared by a number of foreign observers, is that the current policies of favoring small cities just don't make that much sense, and aren't particularly effective anyway. The economic gains from urbanization come from the economies of scale and scope (and network effects, etc) offered by big cities, so there are more of those gains in big cities than in small ones. This is reflected in labor markets, and so migrants in search of higher wages go to bigger cities rather than smaller ones. Obviously China is a big place and not everyone is going to be able to live in Beijing, Shanghai or Guangzhou/Shenzhen. But with better planning and infrastructure those cities could cope with larger populations. Instead using that money to build infrastructure and housing in smaller cities that have difficulty attracting new migrants seems a much chancier proposition that is much more likely to result in spending being wasted. I am pretty disappointed that all the fuss about urbanization since Li Keqiang took over as Premier has not resulted in a deeper rethinking of this issue. The new urbanization policies announced earlier this year look a lot like the old urbanization policies, in that they call for restraining growth in big cities and encouraging growth in small cities.