The paradox of China's growing under-urbanization

Abstract

It is commonly believed that China began the socialist era as a very under-urbanized country relative to its level of development and that it has been eliminating this urbanization gap during the post-1978 period as a result of its economic reforms. Our reexamination of the relationship between per capita income and urbanization that underpins the conventional view suggests that China was not under-urbanized before or during the early period of the reform. Actually, China's urbanization gap appeared and grew in the late period of reform despite mass migration from rural to urban areas. This growing urbanization lag is mainly due to the slow pace in eliminating restrictions on rural–urban migration during a period of rapid economic growth. We call attention to this emerging urbanization lag as it entails significant economic costs in employment and retards economic growth.