What Explains China's Rising Urbanisation in the Reform Era?

China has been transforming from a rural to an urban economy over the past century, especially since 1978 when economic reforms were initiated and rapid economic growth began. This paper attempts to investigate what factors contributed to the rising urbanisation in the period 1978-2000, based on time-series and cross-section analyses. We find that the main driving-forces behind urbanisation, besides changes in urban policy, are economic growth, structural changes and especially inflows of foreign direct investment (FDI). The causal link runs from economic growth to urbanisation and not vice versa. FDI inflows contribute greatly to the coast-inland differences in the rate of urbanisation. Geographical and historical factors have a significant impact on regional urbanisation levels and a high initial level of urbanisation curtails a province's subsequent urban growth.