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What factors have driven urbanization in China?

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DOI: 10.1007/s10668-021-01714-4

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Environment, Development and Sustainability
https://doi.org/10.1007/s10668-021-01714-4

What factors have driven urbanization in China?

Jiahong Guo1 · Zhongqi Yu2 · Zihao Ma1 · Duanyang Xu3 · Shixiong Cao1

Received: 11 February 2021 / Accepted: 22 July 2021

© The Author(s), under exclusive licence to Springer Nature B.V. 2021

Abstract
Urbanization is an important engine of modernization and economic growth, and appears
to be an inevitable trend during the development of human society. We combined eco-
nomic, population, and land urbanization factors to develop a comprehensive indicator,
the comprehensive level of urbanization (CLU). We then used 10 sub-indicators from
four dimensions (economic, political, social, and resource endowment) and panel data
from 30 Chinese provinces from 2000 to 2018 to conduct panel quantile regressions that
accounted for the heterogeneity of the data and a contribution analysis to determine the
key factors that are driving CLU. We found that the industrial structure and marketiza-
tion (the development of market mechanisms) were important factors that increased CLU,
and the contribution of marketization increased with increasing quantile, whereas China’s
land finance model (in which provinces raise operating funds through land sales) decreased
CLU in regions where urbanization had progressed most. Therefore, accelerating market
development, reducing the government’s reliance on the land finance model as urbaniza-
tion matured, and improving the industrial structure by promoting industrial transforma-
tion through improved education and technology will be the keys to achieving high-quality
urbanization in the future. The successes and failures of China’s urbanization process will
provide lessons for other developing countries.

Keywords Panel quantile regression · Contribution analysis · Industrial structure ·

Marketization · Land finance model

Jiahong Guo and Zhongqi Yu contributed equally to this work

* Shixiong Cao
shixiongcao@126.com
1
School of Economics, Minzu University of China, No. 27 Zhongguancun South Street, Haidian
District, Beijing 100081, People’s Republic of China
2
School of Public Policy and Management, Tsinghua University, No. 30, Shuangqing Road, Haidian
District, Beijing 100084, People’s Republic of China
3
Institute of Geographic Sciences and Natural Resources Research, CAS, Beijing 100101,
People’s Republic of China

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Vol.:(0123456789)
 J. Guo et al.

1 Introduction

Urbanization is a key sign of economic development and an essential requirement to pro-

mote social progress (Abbasi et al., 2021; Ye et al., 2018; Zheng & Walsh, 2019). Urbani-
zation represents an increase in the population gathered in cities, accompanied by the
expansion of urban land and infrastructure, along with increased per capita income. The
United Nations reports that more than 55% of the world’s people lived in cities in 2020,
and predicts that this will reach 70% by 2050. The report also noted that 96% of future
urban growth will take place in developing countries, providing them with more sustain-
able economic growth. This sustainability is essential for global efforts to “build back bet-
ter” and to transition to sustainable development (UN-Habitat, 2020). Therefore, under-
standing the drivers of urbanization is of great practical significance for urban management
and policy development around the world. To achieve this goal, more research is urgently
needed to identify the key factors that are driving urbanization.
As the world’s largest developing country, China’s urbanization has grown at an unprec-
edented rate since the reform and opening up that began in 1978 (Cai et al., 2020; Yang
et al., 2019). Especially in the late 1990s, the Chinese government defined increased urban-
ization as one of its key development goals in the twenty-first century (Li et al., 2012).
Urbanization has been progressing more rapidly since 2000. More than 800 million peo-
ple have migrated to cities and towns around the world; simultaneously, the area of urban
land has increased by 34 000 ­km2 and per capita GDP in 2018 had increased to 8 times
the value in 2000 (NBSC, 2001–2019). The winner of the 2001 Nobel Prize in Econom-
ics, Joseph Stiglitz, prophesied that China’s urbanization process would become one of the
most significant events in twenty-first century human society (Stiglitz & Yusuf, 2001). Chi-
na’s leadership explicitly expressed their eagerness to accelerate China’s urbanization by
implementing the “National New-type Urbanization Plan,” which will boost the country’s
consumption to create domestic demand (Chan, 2014; Shin, 2015). Therefore, understand-
ing what has driven China’s rapid urbanization process will both provide valuable support
for policy development and provide other developing countries with important lessons.
Since the twenty-first century, there have been many studies of China’s urbanization,
and the factors selected by these scholars have provided important references for the pre-
sent study. Some believed that government behavior was the main factor affecting urbani-
zation. Examples include selling land use rights to achieve rapid urban space expansion
(Gu et al., 2017), bringing industrial enterprises to rural areas to promote in situ urbani-
zation rather than migration to seek work (Li et al., 2012), and reforming the economic
system to help production factors flow spontaneously to cities as a result of marketization,
which refers to the development of a market-oriented economy (Gu et al., 2009; Xu &
Jiang, 2014). The effect of economic factors on urbanization has also been widely studied.
The development of a financial industry can help urban residents make better use of idle
funds and promote urbanization (Wang, 2010). Traditional industrialization has been una-
ble to promote urbanization unless industrial upgrading was conducted (Wang et al., 2021).
In addition, social development and climate change can change the course of urbanization
(Choy & Li, 2016; He et al., 2006; Wang et al., 2018b; Zhou et al., 2021).
However, most of the existing literature about urbanization in China has examined
the roles of these factors in isolation. This has led to a simplistic understanding of a
complex set of interacting factors and is likely to lead to the development of ineffective
policies. For example, China’s rapid urbanization since the 1990s has focused on the
expansion of the national government’s land finance model (in which provinces raise

13
What factors have driven urbanization in China?

operating funds through land sales), which has created social injustices (e.g., expropri-
ation of occupied land by the government, with compensation below the market price
of the land) and the financial risk of a real estate bubble (Chen et al., 2015). Therefore,
it is necessary to understand the drivers of urbanization from multiple perspectives to
understand the problems and opportunities they create. This will allow urban planners
to develop more efficient and sustainable policies to guide urbanization. In addition,
most scholars have used a single indicator, such as the proportion of the total popula-
tion accounted for by the urban population, to measure urbanization. Unfortunately,
this cannot provide a comprehensive picture that reflects the quality of urbanization. In
the present study, we attempted to solve that problem by developing a comprehensive,
multi-factor indicator that accounts for the economic growth, urban population growth,
and urban land expansion that occur during urbanization.
Thus, the innovative aspects of the present study are that it accounted for a much
wider range of factors than was done in previous research and calculated the relative
contributions of each factor. In addition, our preliminary data analysis revealed consid-
erable heterogeneity in the data, which suggests that basing the analysis on mean val-
ues may be inappropriate. Our literature review revealed no previous research in which
scholars considered the heterogeneity of urbanization in their analysis, instead focused
on average values. However, the key determinants that are driving urbanization may
differ among areas with high and low urbanization, and median values do a better job
than averages of describing such variation. Therefore, it is also necessary to account
for the variation in the key drivers of urbanization in order to support development of
more sophisticated policies. To accomplish this, we chose quantile regression instead
of simple linear regression.
To support a more comprehensive analysis of the quality of urbanization in China,
we obtained multidimensional Chinese statistical data for 30 Chinese provinces from
2000 to 2018, used panel data on 10 sub-indicators to establish panel quantile regres-
sions, and performed contribution analysis to quantify their relative contributions. We
then examined how these factors differed among China’s three regions (eastern, cen-
tral, and western) to capture the geographic variation. Our results provide a more com-
prehensive basis for understanding the driving mechanisms of urbanization, and can
provide insights and a framework that other countries and regions can use to study
their own urbanization processes.

2 Methods

2.1 Data sources

The research subjects in this study were 30 provincial-level administrative units on the
Chinese mainland, excluding Tibet (for which little data is available). We chose the
study period from 2000 to 2018 because China’s urbanization began to develop rapidly
during the twenty-first century, and the most recent national data are from 2018. The
study data came from the "China Statistical Yearbook 2001–2019" for each province or
provincial-level city, such as Beijing and Shanghai (NBSC, 2001–2019).

13
 J. Guo et al.

2.2 Selection of metrics

2.2.1 Dependent variables

Urbanization still has no uniform definition, possibly because scholars have studied it
from the perspectives of many disciplines (Sun et al., 2013). They have mainly discussed
urbanization from three perspectives: population urbanization, in which the emphasis is on
movement of rural residents to cities (Clark et al., 1988; Wang et al., 2017; Wilson, 1941)
and urban population growth (Abbasi et al., 2020); economic urbanization, in which the
focus is on how the center of economic gravity shifts from rural to urban areas (Guan et al.,
2018; Ki, 2001); and land urbanization, in which the focus is on how undeveloped land
transforms into built-up land (Henderson, 2003; Moomaw & Shatter, 1996; Xu & Zhang,
2016). Previous research suggests that to comprehensively measure the level of urbaniza-
tion more accurately from the perspective of quality, we should define urbanization from
multiple dimensions. To achieve this goal, we accounted for factors related to population,
economic and land urbanization (Table 1). We used the proportion of the total population
accounted for by the urban population, the per capita GDP, and the per capita area of land
used for urban construction to represent population urbanization, economic urbanization,
and land urbanization, respectively.
Consistent with Liao et al. (2015) approach, we normalized the values of each indicator
to 0–1 to eliminate the effect of different units of measurement and different magnitudes,
then calculated the comprehensive level of urbanization (CLU) as follows:
PU + EU + LU
CLU = (1)
3
where PU, EU, and LU, respectively, represent population urbanization, economic urbani-
zation, land urbanization, respectively. At this early stage in our research, we assumed that
these three indicators had equal weight. In future research, it would be possible to calculate
the most appropriate weight for each indicator.

2.2.2 Independent variables

Variables that may be driving urbanization were taken as explanatory variables to analyze
their contribution to urbanization development. We selected indicators from four dimen-
sions for analysis: economic, political, social, and resource endowment.
Economic development has an obvious effect on the progress of urbanization. Becker
et al. (1992) found a synergy between the economy and urbanization. In the present study,
we used the development of the financial intermediation sector (Ye et al., 2018), the indus-
trial structure (Deng et al., 2008), and foreign trade (Gu et al., 2017) to represent the devel-
opment of the economy, with the goal of reflecting modernization and the transformation
of the non-agricultural sector. Among the political factors, government policy preferences
are also important factors that affect urbanization (Davis & Henderson, 2003; Renaud,
1981). We chose marketization (Zhang, 2002), the development of a market-oriented econ-
omy, which has been vigorously promoted by the central government since 1997, and the
land finance model (Cai et al., 2019; Wang et al., 2018a) as sub-variables to describe the
expansion of urban land and quantify the impact of government policies on urbanization.
Among the social factors, higher education (Choy & Li, 2016) can reflect the civilization

13
 Table 1  Results of the indicator selection and stationarity tests to select key factors that influenced China’s urbanization process
Dimension Variables Description n Mean S.D Min Max HT test

Economic Financial Intermediation Financial institutions’ end-of-year deposit balance/total 570 17,227.250 20,877.050 398.188 130,000 −3.801***
population
Foreign Trade (total exports + total imports)/total population 570 92.579 170.543 0.326 910.032 −2.638***
What factors have driven urbanization in China?

Industrial Structure (secondary industry + tertiary industry)/regional GDP 570 0.880 0.064 0.617 1.016 −1.959**
Political Marketization (employees of private enterprises + self-employed indi- 570 0.239 0.162 0.039 1.069 −1.521*
viduals)/total employment
Land finance model Land transaction fees/(land transaction fees + budget 570 0.140 0.078 0.013 0.571 −6.256***
revenues)
Social Education Number of regular higher education school/ total persons 570 0.018 0.008 0.005 0.052 −1.507*
Technology Transaction value in technology markets/regional GDP 570 0.103 0.781 0 10.39 −1.488*
Resource endowment Energy Primary energy output/total population 570 2.818 4.981 0.024 60.591 −3.408***
Transportation Length of highways/total population 570 2.917 2.092 0.341 13.621 −1.551*
Climate Average annual precipitation 570 943.171 537.072 115.726 2510.284 −1.973**

n sample size (no. of provinces × no. of years); S.D. standard deviation; Min. minimum value; Max. maximum value; HT test, the z-value and its significance level. (Only vari-
ables that passed the stationarity test are listed in this table.) The results retain three decimal places. Significance levels: ***0.01, **0.05, *0.10

13
 J. Guo et al.

of society, and technology (Chow & Tsang, 1994) can reflect the degree of social develop-
ment. Among the resource endowment factors, differences between regions in resources
such as energy (Li et al., 2013) and climate (He et al., 2006) will lead to differences in their
development pattern. In addition, Wang et al. (2018b) noted that efficient transportation
reflected the degree of resource abundance. On this basis, we chose the per capita primary
energy output, per capita length of highways, and average annual precipitation to represent
resource factors.
We used the Harris-Tzavlis unit root test (HT test) to confirm that the variables could
all achieve a 0-order simple integer at p < 0.10 and that a panel model could therefore be
established. All monetary unit variables were corrected to the value based on the year 2000
to eliminate price effects. Table 1 summarizes the descriptive statistics for the variables
we retained. In the subsequent modeling, we adopted the standardized form of the indica-
tors to eliminate the influence of different units of measurement and magnitudes of the
variables. In addition, we conducted the Hausman test to explore the issue of endogeneity
between CLU and the 10 selected variables by using the explanatory variables in the last
year as instrumental variables. The test results showed that the chosen model did not have
endogeneity and that our regression results based on the 10 sub-indicators would therefore
be reliable.

2.3 Methodology

First, we used a fixed-effects model as the basic model. Then, to detect heterogeneous
responses and find the key factors that determined CLU in a low, medium and high quantile
distribution (the 10, 50, and 90% quantiles; Q10, Q50, and Q90, respectively), we con-
ducted a fixed-effect panel quantile regression analysis (Canay, 2011; Galvao, 2011; Koen-
ker, 2004). We used the following equations for these regressions:
K
∑
Fixed − effect model ∶ yit = 𝛼i + 𝛽k xkit + zi + uit (2)
k

K
( ) ∑
Panel quantile regression ∶ Qyit 𝜏|𝛼i , 𝜀it , xkit = 𝛼i + 𝜀it + 𝛽k xkit (3)
k=1

where yit is the dependent variable (CLU) for province i in year t; α is the y-intercept; xkit is
the indicator that may promote urbanization for independent variable (indicator) k; βk is the
regression coefficient; zi is individual effect; and uit and εit are random error terms. In addi-
tion, τ represents the quantile (10, 50, and 90%). After performing our analysis separately
for each province, we then divided the data into three regions (eastern, central, and western
China) using the classification adopted by China’s National Bureau of Statistics (Fig. 1)
based on their geographic location and then repeated the analysis for these subsets of the
overall data.
The regression results primarily reflect the statistical significance and direction (sign) of
the effect of an indicator, but are less useful for quantifying the contribution of each indica-
tor to the overall effect. We therefore used the absolute regression coefficients to calculate
the contribution of each variable to urbanization for the whole country and for each of the
three regions independently (Feng et al., 2015; Li et al., 2021). We calculated the contribu-
tion as follows:

13
What factors have driven urbanization in China?

Fig. 1  The locations of eastern, central, and western China. Regions were defined by China’s National
Bureau of Statistics according to the level of economic development

AC
Conk = ∑10 k × 100% (4)
k=1
ACk

where Conk is the contribution of variable k to dependent variable y (CLU) and ACk is the
absolute value of coefficient βk.

3 Results

We found both spatial variation (Fig. 2) and changes over time (Table 2) in the level of
urbanization (CLU). The level of urbanization in 2018 was generally much higher than that
in 2000. Although the geographical distribution of CLU was uneven, the overall geographi-
cal trend was that the urbanization level was highest in the east, followed by the central
region, and was lowest in the west. However, in terms of growth rate (Table 2), urbaniza-
tion growth in the western region (an average of 171.2%) was much faster than that in
the eastern and central regions (108.7 and 54.7%, respectively). The spatial and temporal
changes of urbanization indicate that it was necessary to investigate the heterogeneity of
CLU.

13
 J. Guo et al.

Fig. 2  Urbanization of provinces

in China in 2000 and 2018 based
on the comprehensive level of
urbanization (CLU) calculated
using Eq. 1. Actual values for
each province are shown in
Table 2

For China as a whole, marketization and industrial structure together contributed more
than 80% of the increase in CLU (Table 3), and an upgraded industrial structure with a
higher proportion of secondary and tertiary industries drove the development of high quan-
tile CLU most strongly. In addition, transportation and financial intermediation played
small positive roles in improving CLU, but their contributions decreased at the highest
quantile (Q90). The negative effect of land finance on CLU was large (about 9%), and its
contribution changed little as the quantile increased. Education, foreign trade, technology,
and energy had little effect on CLU.
From the regional perspective (Table 4), the factors that influenced CLU most
strongly in the eastern region differed greatly from the key factors in other regions and
in China as a whole. Foreign trade (a contribution of 11.8% at Q90), energy (12.7%),
industrial structure (26.6%), and transportation (28.3%) were all important factors for
eastern region, and marketization gradually became more important (increasing from

13
What factors have driven urbanization in China?

Table 2  Change of the comprehensive level of urbanization (CLU) in China from 2000 to 2018. CLU was
calculated using Eq. (1)
Region Province CLU Mean ± SE Growth rate (%)
2000 2018

Eastern Region Beijing 0.329 0.388 0.013 17.9

Tianjin 0.202 0.197 0.015 −2.5
Hebei 0.119 0.185 0.027 55.5
Liaoning 0.184 0.272 0.022 47.8
Shanghai 0.437 0.467 0.030 6.9
Jiangsu 0.221 0.446 0.038 101.8
Zhejiang 0.208 0.342 0.028 64.4
Fujian 0.126 0.222 0.017 76.2
Guangdong 0.273 0.434 0.013 59.0
Hainan 0.054 0.092 0.078 70.4
Shandong 0.198 0.404 0.043 104.0
Central Region Shanxi 0.064 0.133 0.035 107.8
Jilin 0.091 0.165 0.033 81.3
Heilongjiang 0.148 0.178 0.028 20.3
Anhui 0.077 0.178 0.068 131.2
Jiangxi 0.052 0.137 0.042 163.5
Henan 0.095 0.222 0.047 133.7
Hubei 0.104 0.248 0.029 138.5
Hunan 0.087 0.169 0.057 94.3
Western Region Inner Mongolia 0.074 0.124 0.028 67.6
Guangxi 0.052 0.130 0.014 150.0
Chongqing 0.053 0.142 0.028 167.9
Sichuan 0.080 0.220 0.044 175.0
Guizhou 0.017 0.093 0.024 447.1
Yunnan 0.037 0.109 0.025 194.6
Shaanxi 0.051 0.146 0.030 186.3
Gansu 0.035 0.085 0.017 142.9
Qinghai 0.031 0.060 0.014 93.5
Ningxia 0.037 0.098 0.025 164.9
Xinjiang 0.078 0.151 0.026 93.6

The growth rate was calculated as the difference between the 2000 and 2018 values, divided by the 2000
value

2.4 to 13.8%) as the quantile increased to Q90. The central and western regions mainly
relied on industrial structure (contributions of 21.5 and 34.4% for the western and cen-
tral regions, respectively, based on Q90) and marketization (57.9 and 52.0%, respec-
tively) to promote CLU. In the central region, the higher the quantile, the greater the
promoting effect of the industrial structure on CLU. In the western region, the higher
the quantile, the greater the role of marketization in promoting CLU. One commonality
among the three regions was that the land finance model always played a negative or
non-significant role.

13
13
Table 3  Statistical significance and contributions to China’s urbanization (based on the comprehensive level of urbanization, CLU) for the 10 sub-indicators from the four
dimensions in Table 1 for all Chinese provinces combined
Variable FEM Q10 Q50 Q90
Coefficient Contribution (%) Coefficient Contribution (%) Coefficient Contribution (%) Coefficient Contribution (%)

FIN 0.057 2.54 0.088 4.05 0.057 2.55 0.030 1.28

FOR 0.000*** 0.02 0.001*** 0.04 0.000*** 0.02 0.000 0.01
IND 1.128*** 50.13 1.217** 56.30 1.129*** 50.16 1.048*** 44.85
MAR 0.724*** 32.15 0.495** 22.88 0.722*** 32.10 0.930*** 39.81
LAN −0.208* 9.25 −0.195 9.04 −0.208 9.25 −0.220 9.41
EDU 0.000*** 0.00 0.000*** 0.00 0.000*** 0.00 0.000*** 0.00
TEC 0.027*** 1.19 0.038*** 1.75 0.027*** 1.19 0.017** 0.72
ENE 0.001 0.05 −0.004 0.17 0.001 0.05 0.005 0.23
TRA​ 0.105*** 4.66 0.125*** 5.77 0.105*** 4.67 0.087*** 3.73
CLI 0.000 0.00 0.000 0.00 0.000 0.00 0.000 0.00
C −1.205 – – – – – – –

C Constant; CLI climate (precipitation); EDU degree of higher education; ENE energy consumption; FEM fixed-effect model; FIN financial intermediation; FOR foreign
trade; IND industrial structure; LAN land finance model; MAR marketization; Q10, Q50, and Q90, the 10, 50, and 90% quantiles for the degree of urbanization; TEC, technol-
ogy level; TRA, transportation infrastructure
The coefficient (βk) was calculated using Eq. 2, and the absolute value of its contribution was calculated using Eq. 3. See the Methods section for details. *, **, and ***repre-
sent significance at the 10%, 5%, and 1% levels, respectively
J. Guo et al.
 Table 4  Statistical significance and contributions to China’s urbanization (based on the comprehensive level of urbanization, CLU) for the 10 sub-indicators from the four
dimensions in Table 1 for the three regions of China
Variable FEM Q10 Q50 Q90
Coefficient Contribution (%) Coefficient Contribution (%) Coefficient Contribution (%) Coefficient Contribution (%)

Eastern
FIN −0.098 3.39 −0.223 7.27 −0.083 2.90 0.000 0.00
FOR 0.357*** 12.38 0.391** 12.73 0.353*** 12.34 0.331*** 11.85
IND 0.803*** 27.83 0.880*** 28.68 0.794*** 27.72 0.743*** 26.57
MAR 0.249*** 8.64 0.074 2.42 0.270*** 9.43 0.386*** 13.81
LAN −0.090* 3.11 −0.150 4.89 −0.083 2.89 −0.043 1.53
EDU −0.057 1.97 −0.019 0.61 −0.061 2.14 −0.087 3.09
What factors have driven urbanization in China?

TEC 0.106 3.66 0.200 6.53 0.094 3.29 0.032 1.14

ENE 0.305*** 10.56 0.239* 7.78 0.312*** 10.91 0.356*** 12.73
TRA​ 0.783*** 27.14 0.772*** 25.16 0.785*** 27.40 0.792*** 28.33
CLI 0.038 1.32 0.121 3.94 0.028 0.99 −0.026 0.94
C –0.000 – – – – – – –
Central
FIN 0.000*** 0.00 0.000* 0.00 0.000*** 0.00 0.000 0.00
FOR 0.006*** 0.45 0.010*** 0.63 0.006*** 0.44 0.003 0.23
IND 0.297* 21.75 0.181* 11.60 0.303* 22.32 0.408** 34.41
MAR 0.757*** 55.45 0.904** 57.88 0.750*** 55.32 0.617** 52.00
LAN 0.173 12.70 0.359 22.97 0.164 12.13 −0.004 0.34
EDU 0.000*** 0.00 0.000** 0.00 0.000*** 0.00 0.000*** 0.00
TEC 0.014** 1.04 0.007 0.47 0.015** 1.08 0.021* 1.76
ENE 0.008* 0.58 0.009 0.55 0.008** 0.58 0.007* 0.61
TRA​ 0.109*** 8.02 0.092*** 5.89 0.110*** 8.14 0.126*** 10.64
CLI 0.000 0.00 0.000 0.00 0.000 0.00 0.000 0.00
C −0.736 – – – – – – –

13
 Table 4  (continued)
Variable FEM Q10 Q50 Q90
Coefficient Contribution (%) Coefficient Contribution (%) Coefficient Contribution (%) Coefficient Contribution (%)

13
Western
FIN 0.000*** 0.00 0.000*** 0.00 0.000*** 0.00 0.000*** 0.01
FOR 0.001 0.10 0.001 0.04 0.001 0.11 0.002 0.18
IND 0.451* 38.98 0.725 53.12 0.435* 38.02 0.209* 21.39
MAR 0.472*** 40.81 0.367* 26.90 0.478*** 41.75 0.565*** 57.94
LAN 0.118 10.19 0.150 10.99 0.116 10.13 0.089 9.17
EDU 0.000*** 0.00 0.000*** 0.00 0.000*** 0.00 0.000** 0.00
TEC 0.042*** 3.65 0.049*** 3.60 0.042*** 3.65 0.036*** 3.70
ENE 0.007*** 0.58 −0.001 0.09 0.007 0.62 0.014 1.40
TRA​ 0.066*** 5.68 0.072*** 5.25 0.065*** 5.71 0.060*** 6.20
CLI 0.000 0.01 0.000 0.00 0.000 0.01 0.000 0.01
C −0.794 – – – – – – –

C Constant; CLI climate (precipitation); EDU degree of higher education; ENE energy output; FEM fixed-effects model; FIN financial intermediation; FOR foreign trade; IND
industrial structure; LAN land finance model; MAR marketization; Q10, Q50, and Q90, the 10, 50, and 90% quantiles for the degree of urbanization; TEC, technology level;
TRA, transportation infrastructure
The coefficient (βk) was calculated using Eq. 2 and 3, and the absolute value of its contribution was calculated using Eq. 4. See the Methods section for details. Three decimal
places are reserved for coefficient results and two decimal places for contribution results. *, **, and ***represent significance at the 10%, 5%, and 1% levels, respectively
J. Guo et al.
What factors have driven urbanization in China?

4 Discussion

Our contribution analysis showed that upgrading a city’s industrial structure and promot-
ing marketization were important factors to promote the development of urbanization and
that marketization could strongly promote the development of high-quality urbanization.
Transportation generally played a positive role in promoting the development of urbani-
zation, whereas the land finance model hindered the development of urbanization in the
eastern regions where urbanization had progressed most in all three regions. In contrast,
factors such as education, technology, and climate had weak impacts on urbanization at
regional and national levels (Tables 3 and 4). In addition, the dynamic structure of urbani-
zation differed clearly between the most highly developed region (eastern China) and the
less-developed central and western regions. These differences are likely to be related to
the geographical location, history, and administrative division of the regions. For example,
China’s opening to the west began earlier in eastern China, which was aided by the pres-
ence of many large ports that promoted and facilitated exports to other countries. Eastern
China has traditionally also had the highest population, which resulted from urbanization
that began earlier than in the other regions. It will be interesting to see how CLU changes
in response to Chinese policies, such as the Western Development Plan, that are intended
to improve development in less-developed regions of China.
Upgrading China’s industrial structure contributed the most to urbanization from an
economic perspective (Table 3). This result agrees with the findings of Lin et al. (2018).
The transformation from agricultural to non-agricultural activity is not only a manifesta-
tion of national modernization, but also a manifestation of urbanization (Han et al., 2012;
Liu et al., 2018). Industrialization was the original driving force for urbanization, since
before the Industrial Revolution, most people lived in rural areas and less than 4% of the
population lived in urban areas (Davis, 1955). With the rapid increase in labor produc-
tivity, a large number of farmers voluntarily moved or were forced to move into cities to
seek employment in the industrial production or services sectors (Chen et al., 2013). Since
2014, China’s industrial and service sectors have accounted for more than 95% of GDP and
absorbed 70% of the labor (NBSC, 2001–2019). However, the task of optimizing China’s
industrial structure is not yet complete (Jiang et al., 2018). Accelerating the transfer of
surplus rural labor to non-agricultural industries and cities would improve urbanization;
however, rural migrant workers face large difficulties when they move to cities, since they
do not receive access to the same social services as people who were born in urban areas.
Thus, China’s government should permit these migrants to register as urban residents, so
they can access these services, thereby providing a fairer way for these new urban residents
to participate in China’s modernization and urbanization (Han et al., 2012).
Marketization was the second-most-important driving factor for urbanization and has
been increasing with increasing urbanization throughout the country and in various regions
(Tables 3 and 4). China’s private sector (particularly the development of a socialist market
model) originated from the government’s 1997 “Reform of Mixed Ownership” policy. This
top-down reform, which has lasted for more than 20 years, helped the private sector to
become the most important component of the Chinese economy (Wang, 2006). Marketiza-
tion promotes a free flow of labor and resources, which allows industry to promote its pro-
duction by taking advantage of a new pool of workers, thereby giving rural residents a rea-
son to move to cities. This process is directly improving the level of urbanization (Zhang,
2002). This may explain why marketization promotes urbanization in regions with a higher
level of urbanization. However, most private companies in China are currently too small to

13
 J. Guo et al.

produce on a large scale, and it is not yet possible to guarantee the legal rights of migrant
workers. The government should speed up the development of marketization, and achieve
win–win benefits for both enterprises and employees.
From the perspective of regional differences, it is puzzling that the promotion effect
of marketization was smaller (13.8%) in the eastern region than in the other two regions
(> 50%), when in fact the eastern region is the region with the highest marketization and
urbanization. This surprising result could be attributed to our choice of a single indicator
for marketization. We measured the level of marketization only in terms of employment,
and employment has greatly promoted marketization in the central and western regions
because of their large surplus labor forces. In fact, marketization also includes factors such
as the degree of government control over the economy and the proportion of inputs and
outputs accounted for by the non-state-owned economy. Thus, using only employment to
represent marketization is too one-sided. Due to the lack of indicators, we are currently in
no condition to improve this aspect of research. In future studies, data on additional indica-
tors should be collected when they are available to improve calculation of the contribution
of marketization to urbanization.
The land finance model was an important source of funds for the government to achieve
urban expansion during the early stages of urbanization (Wu, 2011). However, because the
land transfer fee is a one-time source of income, land finance cannot be carried out contin-
uously because the land supply is limited (Wu et al., 2015). Some governments over-relied
on this short-term solution (Cai et al., 2019; Zheng et al., 2014), and the revenues from
this model accounted for more than 80% of their income (Pan et al., 2015). Because many
also invested most of their funds in the real estate industry, this left little money to upgrade
their industrial structure and achieve high-quality urbanization (Xue et al., 2013). When
the land that can be used to support urban sprawl becomes limited, relying on the land
finance model will inevitably lead to a financial crisis in the form of a real estate bubble
(Liu, 2018; Wang et al., 2014), but it can also trigger a food security crisis caused by sales
of farmland to developers of urban land (Yep & Forrest, 2016).
Our results showed that, for these reasons, the land finance model has had a significant
negative effect in the eastern regions with highly developed urbanization among all three
regions, but was less significant in the central and western regions, with less-developed
urbanization. The government has used the land finance model to greatly improve land
urbanization (Wu, 2011), but has failed to improve population and economic urbanization
(Chen et al., 2015). Cui and Yang (2014), Xiong and Gao (2012) used regression analysis
to obtain results similar to ours, which proved the accuracy of our results. Although the
land finance model has solved the financial difficulties of local governments in the early
stage of urbanization (Xue et al., 2013) and has promoted land urbanization (Ye & Wu,
2014), our more comprehensive consideration of the quality of urbanization reveals that
land finance has been unable to achieve high-quality urbanization. Governments should
plan to gradually modify this model to promote more rational planning of urban construc-
tion, control real estate prices, reform the land supply system, and seek more sources of tax
support such as house property tax and land appreciation tax.
Surprisingly, technology and education, which reflect social progress, contributed very
little to urbanization (Table 3). China is not backward in education and technology, since
nearly 8 million students graduate from university and college in recent year (NBSC,
2018–2020). Moreover, China was had the most patent applications in the world since
2017 (WIPO, 2017–2020). One possible explanation for the low contributions of education
and technology may be that the outputs are not being used in the right places. For example,
Employers have a shortage of graduates with the skills they require, and graduates cannot

13
What factors have driven urbanization in China?

find satisfying jobs related to their education (Mzingwane & Plattner, 2008). Besides, tech-
nology innovation does not appear to have been applied to improve large-scale industrial
production, and much of the driving force for urbanization is the migration of rural resi-
dents (including farmers) to the city. These migrants mainly enter low-end private sector
jobs because they lack the required skills for better jobs (Kuhn & Shen, 2015). To improve
the quality of urbanization, it will be necessary to re-examine and improve the roles of edu-
cation and technology in urbanization.
The regional differences (Table 4) confirm this hypothesis that the outputs are not
being used in the right places. Our results showed that the central and western regions,
as China’s main energy-producing regions, had little effect from energy output, with both
contributions less than 2%. In contrast, the eastern region has promoted urbanization with
less energy output. We therefore hypothesize that the rational use of resources is more
important than an exclusive emphasis on increasing output. The contribution of foreign
trade could further illustrate the importance of rational use of the available resources. The
eastern region is close to the sea, so it has a unique geographical advantage in terms of
its ability to promote foreign trade, and the increase in foreign trade contributed greatly
to increasing urbanization (a contribution of 11.8% for Q90). These results suggest that
instead of focusing on output, the central and western regions should make use of their rich
resource wealth and invest the income to promote urbanization.

5 Conclusion

Since the twenty-first century, China’s urbanization has progressed rapidly, but remains
inefficient and imbalanced, with the level of development decreasing from east to west. To
solve these problems, China must identify the key drivers of urbanization and make appro-
priate policy changes and investments. Our results provide useful insights to guide these
choices by the national and provincial governments. Based on our findings, the government
should continue to promote marketization, which has been very important for the develop-
ment of high-quality urbanization; should promote steady reform of the industrial structure
and provide job training to migrant workers to help them find employment in the secondary
and tertiary industries; should explore alternatives to the land finance model to reduce their
reliance on this single source of income; and should invest in education and technology to
promote more effective use of economic outputs rather than focusing only on increasing
those outputs.
Our results demonstrated a high level of regional variation, which suggests that the gov-
ernment should avoid adopting a single rigid policy to meet changing regional needs. This
also indicates the need to replace simple analytical methods such as linear regression with
approaches that account for heterogeneity (e.g., the quantile regression performed in the
present study). Instead, our analysis provides insights into the unique problems and oppor-
tunities in each region. In addition, given the important contributions of multiple indicators
for each region, it is not advisable to pursue efforts to improve the numerical value of a
single indicator, since (with a limited amount of labor and limited capital for governments
to invest) this is likely to compromise the development of other indicators. The government
must determine the overall and relative importance attached to various development indi-
cators, so they can account for the role of each indicator in a given region and avoid wast-
ing money on ineffective strategies.

13
 J. Guo et al.

The essence of pursuing urbanization is to improve the standard of living of urban resi-
dents. Therefore, paying attention to the factors that can improve the quality of urbaniza-
tion is an important way to achieve prosperity for more of these people. Although our study
is preliminary and will be improved in future research, its emphasis on examining many
indicators to reveal their relative contributions will provide a useful reference for other
developing countries that are seeking to identify the key factors driving their urbanization.
Our study had the following limitations: (1) Each indicator should have a richer defini-
tion, but we chose only one sequence to represent this indicator in our study, which is not
accurate to fully describe the contribution of the index to urbanization. (2) Due to a lack of
data for some potentially interesting indicators, such as age structure of population, there
may be omissions in our selection of independent variables. (3) Although regional differ-
ences have been explored in this paper, this division does not fully reflect intra-regional
differences. As can be seen from a comparison between the national-scale results (Table 3)
and the regional results (Table 4), examining the data at a finer level of resolution can
reveal important differences that are not visible at coarser levels of data aggregation.
Finally, it should be noted that our study is a preliminary study. Future research should
define the indicators more accurately, collect more data (ideally at a higher resolution to
reveal intra-regional differences), and add methods that can study spatial differences (such
as geographically weighted regression) to improve the explanatory ability of our results
and their ability to support management improvements.

Acknowledgements This work was supported by the National Key Technology R & D Program of China
(No. 2016YFC0501002). We thank Geoffrey Hart (Montréal, Canada) for editing an earlier version of this
manuscript. We are also grateful for the comments and criticisms of the journal’s anonymous reviewers and
our colleagues.

Author’s contribution S.C. designed the research; J.G., Z.M, and D.X. conducted the data analysis; and
J.G., Z.Y., and S.C. wrote the main text of the manuscript. All authors have reviewed the manuscript and
approved it for submission.

Declarations

Conflict of interest The authors declare no conflict of interest. The opinions expressed here are those of the
authors and do not necessarily reflect the position of the Government of China or of any other organization.

Consent to publish We consent to publish this article in your journal and to transfer its copyright to the pub-
lisher once the manuscript has been accepted.

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