This chapter studies how urbanization enhances economic growth. Through agglomeration effects, employment opportunities and income levels can largely increase. In addition, the mechanism of sharing, matching, and learning are greatly strengthened in cities, especially large cities, which can further bring exchange of information, knowledge spillover and human capital externalities. However, when taking a close look at the urbanization level, speed, and regional variations, we see that the PRC’s urbanization level lags behind that of many developing countries at a similar developing stage. Problems of urbanization, including below average urbanization level and urbanization lagging behind industrialization, need to be solved by institutional reforms for sustainable development.