In Wen Jiabao's final speech as premier, he reaffirmed the government's intention to control the growth of large cities while saying they should also play a role in driving the development of surrounding areas. While I agree with the second part of his statement, increasing the size of metropolitan areas anchored by large cities may be the most effective way to develop midsize and small cities in China, as it has been elsewhere.
At the beginning of its term a decade ago, Wen's government set the goal of developing small and midsize cities. The rapid transformation of China's smaller cities has been impressive, and they should form an integral part of the nation's long-term urbanisation plans.
From urban planning and social management perspectives, China has good reason to favour its smaller cities that lie close to existing rural populations. However, the thrust of China's urbanisation has been driven by its large cities and mega- cities; people are drawn to the economic opportunities there.
The urban landscape is dominated by key metropolitan areas around large cities. There are more than 70 million people in the four megacities of Shanghai, Beijing, Shenzhen and Guangzhou. Such concentrations form self-reinforcing cycles that ensure megacities will continue to grow in size and importance. This is inevitable, shaped by economies of scale - as has happened elsewhere.
Within two decades, more than half of China's urban population will be congregating in the main urban regions. However, Beijing and Shanghai are hardly the solution for farmers. Urban infrastructure and social services are already bursting at the seams in many large cities.
China achieved an urbanisation rate of 51 per cent in 2011, and it is continuing to grow. Within two decades, more than 70 per cent of the population are expected to live in cities - with 250 million new urban residents added in that period. So where will these 250 million people, equivalent to 50 Singapores, be accommodated?
There are estimated to be about 160 cities in China with a population of more than one million, and this figure will grow to more than 220 within two decades. It may not be very efficient to build 250 new cities that can each accommodate a million people - or 500 new cities for 500,000 - to cater for the growth in urban residents. As Professor Li Yining, a leading economist in China, has warned, indiscriminate investment in urbanisation may pose significant fiscal risks and have adverse implications for China's financial sector.
Rather than reining in the growth of megacities, the expansion of metropolitan areas around them should be encouraged as the most effective way to accelerate the development of smaller cities in neighbouring regions. With high-speed rail links now in operation or being developed, the influence of the Pearl River Delta, for example, will radiate to surrounding cities such as Xiamen, Changsha and Nanning. In turn, this will trickle down to smaller cities in their provinces.
China's urbanisation now involves a redistribution from the centre and the west to the coast; this need not be resisted. But effective urbanisation must also be accompanied by reform of the household registration system.
If we look at South Korea, its economy is largely driven by the greater Seoul metropolitan area, with some 25 million people - about half the nation's population. While the population of Seoul remains stable at around 10 million, the surrounding Gyeonggi region has been growing rapidly. Bundang and Ilshan have become significant satellite cities.
Rather than resisting the inevitable growth of megacities, China should plan for orderly growth. Beijing's population can possibly grow to 30 million and Shenzhen perhaps to 40 million. Administratively, Beijing is really a region and some of its districts can be seen as cities in their own right. With proper city planning, including the development of more subway and rail links, the outer districts have much room for growth. In addition to reclaimed areas, such as Qianhai, and expansion to the outer districts, urban redevelopment may be a priority for Shenzhen.
As has happened in the greater Seoul area, China needs to develop secondary cities clustered around its megacities. They may be small, with populations of five to 10 million, when compared to the megacities, but they are not small in the absolute sense. These secondary cities will in turn be the hubs that will propagate growth to the next tier of cities that are smaller, and so on. The key task is to develop networks through high-speed rail and highway links, which the Chinese government has been doing. With appropriate guidance, the market can decide how cities will grow.
Many astute businessmen are now focusing on smaller cities in China; market forces will direct economic and population growth from the megacities to second- and third-tier cities over time. Wen warned of unbalanced development; this may continue as part of the necessary economic process before things balance out in the longer term, again led by the market.
Winston Mok is a private investor, a former private equity investor and McKinsey consultant. An MIT alum, he studied under three Nobel laureates in economics