Over the past 35 years, China has undergone a period of rapid urbanization, with the country’s urban population expected to reach one billion—or 71.4 percent of the population—by 2030. Today, more than 600 million people (roughly half the population) live in China’s urban regions.

Not surprisingly, this growth has led to substantial sustainability impacts, and since 1997, a number of sustainable urbanization projects have been initiated in China, either by government institutions such as the National Development and Reform Commission (NDRC), which launched the Low-Carbon Provinces and Cities pilot, or by international organizations such as the United Nations Development Program (UNDP) and UN Human Settlements Program (UN-HABITAT)’s Sustainable Cities Program in China.

These initiatives have focused on challenges such as environmental degradation, climate change, waste management, and transportation. While relatively small in scale and narrow in focus, these initiatives have demonstrated the potential for scaling up sustainable urbanization in China, built through a collaborative approach that includes government, business, and civil society.

As part of our ongoing series examining sustainable urban growth, we recently completed a review of literature as well as interviews with Chinese government officials, BSR member companies, and international NGOs, and this research has revealed the opportunities for business investment in sustainable urbanization—particularly related to environmental challenges including energy use, pollution, and the impacts of infrastructure. We believe these areas of sustainable development will help drive China’s economic growth in the next decade. To accomplish this, however, it will be critical for business to collaborate and find ways to scale up the models that have served as pilot projects for sustainable urban growth in China.

The Rise of China’s Great Cities—and Great Challenges

In the late 1970s, China’s economic recovery initiatives, as well as an inflow of foreign investment, created massive employment opportunities in cities, which led to a stream of migrants moving from rural to urban areas. In 1985, China’s 22 most populous cities had a total of 47.5 million people, or about 12 percent of China's urban population. According to the most recent census in 2010, urbanization became concentrated in five large cities—Beijing, Chongqing, Guangzhou, Shanghai, and Tianjin—which now have a combined population of 94.5 million, or more than 14 percent of the country’s urban population.

This influx of people looking for better career opportunities in cities has created significant and growing natural resources and environmental challenges that can be grouped into three main categories: energy, environmental pollution, and infrastructure.

The challenge of energy: According to the U.S. International Energy Outlook, China is projected to consume more than twice as much energy as the United States in 2040. Currently, coal accounts for more than 70 percent of China’s energy mix (PDF), followed by oil (20 percent), and natural gas (less than 5 percent), and also renewable energy (very little). Energy demand from city residents is dominated by secondary energy such as electricity. Due to China’s urbanization, it is predicted that per capita electricity consumption will increase by more than 10 percent between 2010 and 2015.

Because energy choices in Chinese cities are limited by the availability of energy resources in the country and around the world, it’s predicted that the traditional energy resources such as coal and petroleum will still dominate the energy supply. According to China’s 12th five-year energy plan, by 2015, coal, the most carbon-intensive fossil fuel, will remain the country’s primary energy source. (The share of non-fossil-fuel energy sources—including hydropower, nuclear energy, wind, and solar—is projected to increase to around 11 percent.)

In this context, there is an opportunity for business to collaborate with government and civil society on the development and application of energy-efficient technologies.

The challenge of environmental pollution: China’s growing urban population has come with a rise in industrial activities such as power generation, transportation, infrastructure construction, and waste disposal, which have led to air and water pollution as well as land degradation.

One of the most prominent environmental challenges is air pollution, resulting from the massive consumption of fossil fuels. Research shows that cities account for about two-thirds of energy use and more than 70 percent of greenhouse gas emissions (PDF). An estimated 40 percent of city emissions come from power generation and industrial activities, with the remaining 20 percent from transportation, buildings, and waste. In addition, coal-fired power plants and vehicles generate air pollutants, including sulfur-dioxide, nitrogen-oxide, and fine particles that cause the hazardous smog in many cities.

Another growing challenge in China relates to the way we manage water and wastewater. Many cities are facing water scarcity, not only because of insufficient supply, but also due to pollution of otherwise accessible water. This issue is particularly acute in cities, where government managers are pushing for integrated systems that incorporate water supply, wastewater treatment, and reuse. The biggest challenge in adopting these systems is a disjointed government system: While China’s water authorities and environmental protection bureaus are both partially responsible for water-pollution controls, neither is fully responsible for all water issues.

Solid waste is also associated with the growth of consumer societies in Chinese cities. Beijing, for example, produces 18,400 tons of solid waste daily, with an annual growth rate of 8 percent. Today, many cities are running out of land, and there are increasing concerns about the health effects of dioxin emissions and toxic fly and bottom ash generated from incineration. It’s clear that China needs new technology and effective management systems to deal with its city waste.

While these environmental challenges are particularly apparent in the cities, they are also perhaps easier to solve in urban regions. Cities can take advantage of the economies of scale that allow for more efficient use of resources through, for example, mass transportation and centralized waste treatment.

The challenge of infrastructure: Globally, buildings account for as much as a third of greenhouse gas emissions and more than 40 percent of global energy consumption (PDF), which is more than any other industry or transportation alone. It is projected that about 40 billion square meters of floor space will be built in China over the next 20 years—an annual increase of approximately 5 percent (PDF). With the growing investment in real-estate development, the energy efficiency of buildings will be one of the key success factors and challenges of sustainable urbanization in China. In its 12th five-year plan, the Chinese government is requiring that 20 percent of the new buildings in urban areas comply with the country’s green building standards, which stipulate the adoption of energy-efficient technologies in new buildings.

In addition to the challenge of buildings, China’s mass-transit systems will need to be revamped to reduce environmental impacts. Many Chinese cities are working on developing low-carbon metro systems and high-speed railways, and limiting the massive use of fossil-fuel-fired vehicles.

The Future of Sustainable Urbanization in China

To date, most of the investments in China’s sustainable urban development go into infrastructure through projects that have been relatively narrow in focus. Future sustainable urbanization projects must be more diversified, designed to adopt integrated approaches, and created in a way that solutions can be replicated on a larger scale. This will require collaboration among government, business, and civil society.

The role of government: Traditionally, China’s development policies have focused on securing energy for the country’s rapid industrialization, and little attention has been paid to environmental consequences. As evidenced by the 12th five-year plan, the government continues to prioritize economic growth. At the same time, there is considerable evidence that the government is now putting greater emphasis on a more sustainable model of growth, characterized by increased resource efficiency and reduced environmental impact. The 12th five-year plan includes a series of commitments to conserve natural resources, combat environmental pollution, and respond to global climate change challenges. The five largest cities in China are beginning to focus on sustainability issues by putting things like overcrowding and natural resource constraints on development agendas.

According to an NDRC official we interviewed, future urban policy will focus on integrated solutions to sustainable city development as well as more transparent government administration and public participation. This source also told us that leading companies and government think tanks are developing an indicator system that could restrain city’s excessive economic motive to help support low-carbon city development.

The role of civil society: Along with the government-led development of sustainable cities, it is likely that civil society will become more engaged, not only at the initial planning and consultation stage, but throughout the entire journey to share best practices and help government create policies and evaluate performance.

In interviews with BSR, two experts from leading the WRI and the World Wildlife Fund noted that China’s megacities (also known as tier-1 cities) are not sustainable due to the rate of population growth and the demands for both natural resources and services. This challenge is perpetuated by the fact that sub-tier cities are not attractive to migrants due to the lack of infrastructure and job opportunities.

However, policymakers have begun to look at the Western model of urban development to reevaluate the importance of sub-tier and satellite cities as a way of balancing the population growth and distribution of resources. For instance, in the Yangtze Delta business and civil society groups have started to engage with the government at the very local level to make informed decisions in the early stages of urbanization.

The role of business: As a business network, BSR understands that private companies’ involvement in sustainable urban development is driven by both profit and a sense of social responsibility. Private companies are the implementers of specific urban development projects and also often the developers of new technologies that address sustainability challenges.

Business is also well-suited to help government with its management systems. In China, different governmental sectors often have conflicts of interests and fail to work in a systematic way. A city-management system is more likely to succeed when sustainability is “institutionalized” across the different functional units. The private sector can help create these links through information technology systems that allow city managers to make timely decisions during emergencies and informed decisions on long-term development issues. This kind of system can also improve government transparency, providing opportunities for public monitoring and participation in city management and decision-making.

Although this kind of system is yet to be developed in China, we have seen this in other parts of the world: IBM, for example, has introduced a software platform for Rio de Janeiro’s city managers to monitor a broad range of operations, as well as to involve citizens and businesses in incident reporting and resolution.

Though traditionally conservative, China has been becoming more open to new concepts and is actively adopting advanced technologies to solve the growing environmental challenges associated with rapid urban and industrial development. However, we know that sustainability challenges related to urbanization require collaboration among government, business, and civil society, and when this happens at scale, it will be possible for China to transition from its traditional urban development model to a more sustainable model of growth.

This article is based in part on BSR’s October forum on “Collaboration on Energy and Urbanization in China.” Also read our articles on sustainable urban development, trends in Hong Kong, and trends in Cairo.