But unlike urbanization in European countries, the Chinese government has played a stronger role in speeding up the process because China's industrialization was fast, Sun says.

"Europe's urbanization was largely a result of free-market forces, but because China has a large population and was experiencing rapid industrialization, the government had to do more to balance the two."

In the Chinese government's 10th Five-Year Plan (2001-05), urbanization was listed as a national strategy, and the plan said rising levels of urbanization would optimize China's economic structure and create virtuous cycles of sustainable socio-economic development.

Urbanization continued to be a key strategy in the 11th Five-Year Plan (2006-10), with increasing emphasis on reducing energy consumption and carbon emissions, and reducing the rural-urban divide.

With growing emphasis on sustainable growth in the 12th Five-Year Plan (2011-15), the government has set ambitious targets to accommodate the growing urban population by developing 36 million units of affordable housing.

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Low-emission urbanization is another target in the current five-year plan, with the government setting out financial policy support for strategic sectors including biotechnology, new energy, new materials, clean-energy, high-end manufacturing, energy conservation and next-generation information technologies.

Rapid urban growth due to both market forces and government policies has led to bold forecasts by economists. In 2008, McKinsey and Company's research arm McKinsey Global Institute forecast in its report "Preparing for China's Urban Billion" that China would have 1 billion urban residents by 2030.

The same report also forecast that China by 2025 would derive 90 percent of GDP from its urban economy. By then, the country will have 221 cities with more than 1 million inhabitants, in comparison with just 35 in Europe in 2008.

Considering that China's urban population last year was 711.82 million, the commercial opportunities from China's urban population growth in the next two decades is immense. The country's current urban population rate of 52.6 percent compares with around 80 percent for most developed countries.

Sun says this increase in urban population creates tremendous opportunities for China to further move its industries up the value chain, especially as urban centers are expected to create large demand for services.

"China cannot remain the world's manufacturing hub, because we cannot compete with countries like India on cost, so we must develop more service-sector growth, like catering industries or care homes, which will always have a concrete demand as China's urban population grows," Sun says.

"At the same time, an increase of high-tech and professional sectors in urban centers can make China a hub for back-office services and R&D development for multinational companies."

Challenges ahead

Despite the opportunities, China's rapid rural-urban migration has put increasing pressure on cities' abilities to provide enough resources for their burgeoning populations. Such resources can range from infrastructure to welfare provision.

One problem that has attracted international attention is the lack of welfare for migrant workers because they are still registered as rural residents under the household registration system, also known as hukou.

The division of Chinese citizens into rural and urban hukou was initiated in the 1950s under the centrally-planned economy as a way to prevent large-scale population movements and ensure social stability.

Because citizens receive social benefits, welfare provisions and other public service provisions in line with their hukou, rural workers who work in the cities often face higher costs for healthcare and education, while receiving limited social security and protection.

"Migrant workers in big cities can't get urban hukou so they feel like second-class citizens in their own country, and this creates social problems," says Athar Hussain, director of the Asia Research Centre at the London School of Economics and Political Science.

"This problem will become more serious as time passes. First-generation migrants may tolerate this inequality, but their children will not," Hussain says.

According to the National Bureau of Statistics, there were 262.61 million migrant workers last year, accounting for more than a third of the urban population.

In recent years, some progress has been made to integrate migrant workers. One pilot scheme implemented by the Shenzhen municipal government in April 2012 allows migrant workers to obtain urban household registration via an evaluation system, although critics have claimed the criteria are too strict.

Hussain says China needs to gradually reclassify all migrant workers as urban residents to ensure social stability. "It can't happen overnight, but if there is political will to do it, it can be done."

Another social challenge for China's urbanization is disputes over the sale of rural land, which now take place on a large scale as farmland makes way for new cities, Sun says.

Farmers are not compensated sufficiently in many cases, which means they will struggle to live properly when they move into cities where costs of living are much higher, he says.

According to the Land Administration Law, compensation for farmland requisitions should not exceed 30 times the land's average annual output value during the three years before expropriation, but Sun says compensation calculated on this basis often does not reflect the true value of the farmland.

"The current problem is that a large proportion of local government financial revenue is derived from land sales, so local governments often try to buy rural land cheaply from farmers and sell it expensively to developers," Sun says.

Ehtisham Ahmad, a senior fellow at LSE's Asia Research Centre, agrees with Sun that local government financing structure needs fundamental reform, and suggests that one way is to create an efficient system of property tax collection.

"In many Western countries, including the UK, local governments rely heavily on property tax to provide public services. Because the amount of tax collected is related to property prices, there is incentive for the local government to improve the local area's facilities."

In 2011, Shanghai and Chongqing started testing a model of collecting property taxes, but Ahmad says these systems are designed with formulas too complex to be effective.

For example, Shanghai's property tax system has different rates for normal houses and luxury houses; and for migrant workers and Shanghai hukou residents. Chongqing taxes only properties that have price per square meter double the average in the city or if it is a detached house.

"China needs to create a more effective system of property tax collection, otherwise the revenue will be insufficient to help it reduce reliance on farmland sales revenue," Ahmad says.

Another challenge is inefficient urban planning, resulting in urban sprawl and congestion, says Yang Wei, managing director of Wei Yang & Partners Ltd, a UK-headquartered urban design and master planning company.

"Big cities like Beijing and Shanghai have received a disproportionate amount of infrastructural investment from the central government, which made them the centers of opportunities. This has led to urban sprawl," Yang says.

"Because these cities expanded so much, they experience congestion when commuters travel to urban centers during peak hours."

She says that a more effective model of development for Chinese cities should be designating several city centers within a big city so that residents can live around these centers and commute to work easily, with each center connected to the other using high-speed public transport to ensure accessibility.

Encouragingly, many challenges of urbanization voiced by experts are also acknowledged by the Chinese government.

In March, Premier Li Keqiang pledged during the annual meeting of legislators and political advisers that a people-focused "new-type of urbanization" that facilitates better integration of migrant workers into urban society and encourages the development of cities of various sizes.

Based on these goals, the government will issue a new plan on urbanization in the second half of this year, says Li Tie, director-general of the China Center for Urban Development at the National Development and Reform Commission.