The paradox of China’s growing under-urbanization Gene Hsin Chang a,b , Josef C. Brada c, * a The University of Toledo, Toledo, OH, USA b Shanghai University of Finance and Economics, Shanghai, China c Department of Economics, Arizona State University, Box 873806, Tempe, AZ 85287-3806, USA Received 18 April 2005; received in revised form 30 June 2005; accepted 11 July 2005 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. # 2005 Elsevier B.V. All rights reserved. JEL classification: O11; O15; O18; P25; R23 Keywords: China; Urbanization; Migration; Development 1. Introduction There have been numerous studies in the economics literature on China’s urbanization recently. Economists and policy makers have emphasized the changes wrought by the rapid urbanization process in China as hundreds of millions of rural migrants moved to cities, constituting one of the most significant events in economic development history. Most scholars believe that China had been under-urbanized relative to countries at a comparable level of development (Ebanks and Cheng, 1990; Liu et al., 2003). This urbanization lag implies a www.elsevier.com/locate/ecosys Economic Systems 30 (2006) 24–40 * Corresponding author. Tel.: +1 480 965 6524; fax: +1 480 965 0748. E-mail address: Josef.brada@asu.edu (J.C. Brada). 0939-3625/$ – see front matter # 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.ecosys.2005.07.002