China needs to build cities that are more dense to cut down on infrastructure costs according to a new study from the World Bank Group and China's State Council Development Research Centre.

As with many other parts of the world, low-density urban sprawl is eating up farmland as China's millions move to the cities, which are consequently sprawling outwards. The report recommends a focus on efficient land use and proper land rights for farmers with improved compensation for land that is taken from them for building.

With business as usual China would be expected to spend an astonishing $5.3 trillion on new infrastructure in its expanding cities up to 2030. That is over 50% of last year's GDP. By that year more than 300 million people are expected to have moved into cities.

But the report suggests that by building more efficient, dense cities $1.4 trillion of this spending could be saved

Most new urban land has been taken from farmers with them receiving a pittance in compensation, often at levels below 20% of market prices. Pain the market price would, the study says, have helped to prevent the large urban-roll inequality gap which is a major source of social unrest in the country.

China needs to further reform its land ownership system to make more efficient use of land. Its current system is called hukou, a system based on where person historically lived. 260 million migrants are excluded from this system and so are denied access to basic public services.

The report recommends that central government subsidise the transfer of migrants into a residence-based system and a sets up nationwide standard for public services. It also recommends making pension benefits portable across the country.

Financing cities

Local government revenues in China are heavily dependent upon land-based financing. The report recommends that cities gradually replaced this source of funding with housing and car taxes, the ability to use bond markets and obtain long term loans.

Local governments should be given incentives to enforce existing environmental laws to discourage carbon, air and water pollution and combat environmental degradation. This should also be done with market-based tools such as taxes and trading systems. It would make economic sense since there is a $300 billion a year bill in China for mortality and health problems caused by air pollution.

The report, Urban China: Toward Efficient, Inclusive and Sustainable Urbanization, includes six priority areas for a new model of urbanization, and was launched at the International Conference on Urban China: Toward Efficient, Inclusive and Sustainable Urbanization in March.