Right direction needed

"The next decade will be a crucial stage for China's urbanization," said Zhang Monan, an economy researcher with the State Information Center.

"The investment on China's Keynes-style urbanization cannot necessarily ensure sustainable GDP growth. The fundamental influence of urbanization does not lie in expanding demand at home but increasing the effects of economies of scale, labor distribution and cooperation."

Hopefully, this plenum will specify the direction of relevant reforms and make breakthroughs in coordinating the efforts of different ministries and local governments.

The National Development and Reform Commission disclosed in June that the Chinese government will transform rural residents fitting certain criteria into urban residents by lifting the hukou control of all small cities and towns, easing the limits on the hukou of middle-level cities in an orderly way, gradually lowering the conditions for hukou in big cities and prudently designing the conditions for applying a hukou in the largest cities.

Thus, local governments of small and middle-level cities will have to find new revenue sources to pay for the rising welfare costs.

The local urbanization of small and middle-level cities is an important channel not only to ease the population pressure on the largest cities in China, but also to boost balanced development of industry and the job market across the country.

In China there are 2,816 small and middle-level cities with a population smaller than 1 million. These cities and towns account for 84.5 percent of the national economy.

Recent research of the Beijing-based Northeast Asia Development Research Institute shows that China's urbanization ratio of small and middle-level cities is only 35.1 percent.

Zheng Xinli, a researcher in the Beijing-based China Center for International Economic Exchanges, said: "Whether the welfare gap between farmers and big-city residents can be filled in the next 10 to 20 years depends on the economic development of counties and small and medium-sized cities."

"If the urbanization ratio of the small and medium-sized cities can reach about 50 percent, they will make a powerful contribution to the reasonable growth of the quality national urbanization ratio," he added.