Are China's cities bigger than we thought?

 One of the key questions about China is how many people now live in its enormous cities, and how many remain in the countryside?

China’s urbanization has been one of the largest migrations in history, with an estimated 30 million people moving to cities each year. By 2007, official statistics estimated that 44.9pc, or 594 million people, were urbanites.

However, a new report from Pivot Capital Management suggests that the real figure for city-dwellers is much higher. Pivot’s analysts point out that China’s definition of "an urban centre" includes, among other factors, a population density of more than 1,500 people per square kilometer.

"By that definition, Western cities like Houston or Brisbane could not technically be counted as cities," says Pivot. "In China, a lot of the so-called ‘villages’ and ‘townships’ are in fact highly industrialized…China has a very low proportion of population living in urban centres of less than 500,000 people. Mexico, USA and Germany count every town of more than 2,500 people as ‘urban’ and consequently have much higher urbanization rates. We would speculate that by such definition China would be one of the most urbanized countries in the world."

Pivot believes that the true rate of urbanization could be as much as 20 per cent higher, meaning that there are only 100 million people who still need to be urbanized. If that’s the case, there are interesting implications for the Chinese economy.

It means that GDP growth and productivity growth as likely to start dipping, and that the need for commodities to build new infrastructure could fall too. It means the welfare state will be even more expensive to fund, and property prices are unlikely to keep rising so spectacularly.

Stephen Green, an economist at Standard Chartered, has had a close look at the Pivot report, which draws some of its claims from an authoritative OECD report earlier this year into urban trends.

Mr Green rebuts the claim, arguing first that the National Bureau of Statistics has fine-tuned its definitions and then that just because Chinese cities are sprawling and engulfing the countryside doesn’t necessarily change the occupation of the people falling within the new "urban area". According to the 2000 census, one in five city dwellers were actually farmers. "In theory, one should take these people out of the urban number".

Then there is the difficulty with the migrant population, which in the past have been missed by census surveyors. However, Mr Green argues that the 2000 census deliberately overcompensated as a result and that an additional 20 million people need to be discounted.

He suggests that many people living in the sprawl will migrate to "proper" urban areas when the generations switch from farming to factory work or other employment. In addition, families in the suburbs will upgrade their properties, leading to greater population density.

At any rate, he contends the urbanization ration remains somewhere between 42 per cent and 50 per cent – far lower than Pivot suggests.