SHANGHAI (REUTERS) - China's urbanisation rate is expected to hit 60 per cent by 2018, according to a prominent government think tank report, two years ahead of previous official expectations, bringing a potential economic boost to the world's second largest economy.

China's urban population has boomed over the last three decades, with over half of all Chinese living in cities for the first time in 2012.

Around 54 per cent of the population lives in cities now, according to the Chinese Academy of Social Sciences' blue book report, the official Xinhua said on Friday.

China's leaders are pushing for a larger number of the country's near 1.4 billion population to live in cities, a drive to boost economic output and reignite growth that slowed to a 13-year low of 7.8 per cent in 2012.

But authorities also face the challenge of regulating one of the largest migrations in human history, with steep financial and political costs to facilitate the 25 million people a year who are expected to move to cities.

Resettling China's rural workers into city life could cost around 650 billion yuan (S$135 billion) a year, a Chinese think tank said in July, the equivalent of 5.5 per cent of fiscal revenue in 2012.

The leadership is also struggling to balance goals such as encouraging the migration of millions of former farmers into cities, while avoiding the slums and unemployment problems that have occurred in other countries experiencing similar migration.

China also needs to drive through social welfare reforms to remove obstacles for urbanisation.

Millions of migrant workers in China's big cities lack access to education, health and other services tied to the country's strict household registration, or hukou, system.

In the past 30 years, China's urban population has jumped to more than 700 million from less than 200 million, a dramatic shift that has sometimes triggered violent clashes over land use, as well as water shortages, pollution and other problems.