Analysis | China should build bigger, denser cities as growth engines

China needs a new prescription for growth: cram even more people into Beijing, Shanghai, Guangzhou and Shenzhen.

While this may sound like a recipe for disaster, failing to expand and improve the urban areas of the biggest cities could be even worse. That was because they drove innovation and specialisation, with easier-to-reach consumers and more cost-efficient public transport, said Huang Yukon, a former World Bank chief in China.

He estimates Beijing's seven-month-old urbanisation blueprint, which aims to funnel rural migrants to smaller cities, will slice as much as a percentage point off gross domestic product growth annually to the end of 2020.

"China's big cities are actually too small," said Huang, a senior associate at the Carnegie Endowment for International Peace's Asia programme in Washington. "If China wants to grow at 7 per cent for the rest of this decade, it's got to find another 1 to 1.5 percentage points of productivity from somewhere."

A strategy that supported the expansion of the biggest cities would add US$2 trillion to China's output in 10 years, more than India's 2013 GDP, said Andy Xie, a former chief Asia-Pacific economist at Morgan Stanley.

The country should have big, densely populated urban areas, Xie said. The mega cities needed to build up, not out, he added, citing Tokyo and its population of about 37 million.