The pace and scope of the socioeconomic transformation now under way in China defies exaggeration. Consider, for example, the fact that since Deng Xiaoping's first experiments with market reforms, in the early 1980s, about 400 million Chinese have left the ranks of the impoverished. Or that in the past decade alone about 120 million people—twice the population of France—abandoned agriculture in search of the economic opportunity created by China's dual embrace of urbanization and industry. An additional 60 million to 70 million people will join them by 2010.

Yet profound social challenges have accompanied the benefits of economic reform. The dismantling of state-owned enterprises (SOEs) and rural collectives has left hundreds of millions of people in China's impoverished countryside to fend for themselves when it comes to health care, old-age pensions, and education. Recognizing that such inequalities heighten the potential for social unrest, the government recently stepped up its efforts to address the needs of the rural poor.

But even as China's leaders undertake the daunting task of searching for ways to aid the rural population, they must prepare for the urbanized society that China is fast becoming. Indeed, within only 20 to 25 years, some two-thirds of China's 1.3...