Reliance on land sales 'must be reformed' (2)

If farmers are not satisfied over levels of compensation, authorities have to pay them more to avoid protests, resulting in growing debt for local governments and increasing prices for home buyers.

Hua said it is "abnormal" for local governments to draw direct revenue from land sales. Instead, they should adjust and redesign land policies by integrating them with the hukou system, he said.

China's rate of urbanization passed 50 percent in 2011. Urban residents accounted for 51.27 percent of the population in 2011, up 1.32 percentage point from 2010.

Hua said the figure should be about 65 percent at this stage. Japan and South Korea finished urbanization in about 40 years.

The definition of urban residents includes migrant workers who have worked in cities for more than six months. The number of migrant workers rose to about 252 million in 2011.

There are more than 400 million migrant workers and their immediate relatives, about one-third of the population.

The hukou system hinders consumption as urban residents consume about three times as much as rural dwellers.

"In addition, it is a colossal waste of social resources and also the root of social unrest. It has become a major cause of economic and structural imbalance," said Hua.