Chinese cities' four modernizations

The second major issue facing China during the urbanization process is the conflict between rural landowners and local governments - a highly combustible dynamic. Forced demolitions have already sparked thousands of isolated protests. If this is allowed to continue, public outrage will intensify, generating social instability and undermining economic aspirations.

Fortunately, some progress is being made in this area as well. Sichuan province's deputy Party secretary, Li Chuncheng - known as "Li Chaicheng," or "Li destroys the city" - was recently arrested on corruption charges for his brazen expropriation of farmers' land.

A more promising development is that, according to the Third Plenum road map, farmers must receive a fair share of the profits from land-value appreciation, and will be entitled to transfer their land or use it as collateral. Future policy could allow sales directly to developers, rather than via local governments, ensuring fairer compensation for rural citizens, and also less revenue for local governments to spend on construction.

The third issue that must be addressed is migration. For three decades, China underwent massive internal migration to the coastal areas of Guangdong, Zhejiang, Jiangsu, and Shanghai, where export-oriented factories awaited the low-cost labor that enabled them to fuel China's GDP growth - and a much-touted reduction in global poverty. At the same time, however, the migrants strained local governments' capacity to provide adequate housing, health care, and education.

The key role of migration in China's economic development is reflected in the Third Plenum's road map, which is most explicit in addressing hukou - the household registration system that restricts access to social services to one's place of origin. Under the new plan, rural migrants settling in smaller towns and cities will gain access to services such as healthcare and education, and the government will gradually relax hukou restrictions in medium-size cities. These efforts, it is hoped, will ease the burden on larger cities like Beijing and Shanghai, which are already overwhelmed with migrants.

The final major issue affecting the urbanization process - stressed in the Third Plenum communiqué - is how to finance infrastructure and human services. As it stands, local governments foot most of the bills. But, given that few local governments have the authority to levy their own taxes, they have largely turned to real-estate development to generate revenue.

The problem is that the elaborate credit systems that they have created to underwrite infrastructure or property development - so-called "local-government financing vehicles" - undermine more sustainable borrowing and lending, while weakening State-owned banks' balance sheets. In order to make local-government borrowing more transparent and accountable, the Third Plenum called for streamlining the distribution of revenue between the central and local governments, increasing transfer payments to cities, and allowing local authorities to issue municipal bonds independently. Here, the challenge lies in implementation.

It is highly likely that this new phase of urbanization will yield diverse results across China. How leaders address infrastructure investment, land rights, migration, and financing will help to determine the sustainability of the fundamental transformation that lies ahead.

The author is managing director of the Brookings Institution and the author of Inside Out, India and China. Project Syndicate