For companies—in China and around the world—the scale of China's urbanization promises substantial new markets and investment opportunities. At the same time the expansion of China's cities will represent a huge challenge for local and national leaders. Of the slightly more than 350 million people that China will add to its urban population by 2025, more than 240 million will be migrants. This growth will imply major pressure points for many cities including the challenge of managing these expanding populations, securing sufficient public funding for the provision of social services, and dealing with demand and supply pressures on land, energy, water, and the environment.

The policy choices that China's leaders make at national and local levels can alter the shape of urbanization significantly. MGI finds that an urgent shift in focus from solely driving GDP growth to an agenda of boosting urban productivity—achieving the same or better economic results with fewer resources—is not only an opportunity but a necessity.

By moving in this direction, China would cut its public spending requirement by 2.5 percent of GDP or 1.5 trillion renminbi a year, reduce SO₂ and NO_x emissions by upward of 35 percent, halve its water pollution, and deliver private sector savings equivalent to 1.7 percent of GDP in 2025 mainly through reduced natural resource consumption.

MGI's analysis suggests that China should tailor policies that would shift urbanization toward a more “concentrated” shape of urbanization. This pattern of urbanization could produce 15 supercities with average populations of 25 million people or spur the further development of 11 urban “clusters” of cities, each with strong economic networks and combined populations of 60-plus million.

MGI finds that concentrated urban growth scenarios could produce 20 percent higher per capita GDP than that yielded by China's current urbanization path, would have higher energy consumption but also higher energy efficiency, and would contain the loss of arable land. Concentrated urbanization would also have the advantage of clustering the most skilled workers in urban centers that would be engines of economic growth, enabling China to move more rapidly to higher-value-added activities.

MGI offers a rich urban productivity agenda for China's city leaders and examines what national policies are needed for China to move to a path of more concentrated urban growth.

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