This paper examines the forces that are shaping recent urban development in the economically most prosperous region of China — the Pearl River Delta. It shows that economic reform since 1978 has accelerated the pace of industrialization in the region and thereby led to the rise of a growing number of new urban centers. While public policies of the government continue to play a central role in defining the patterns of urbanization, they are increasingly localized and heavily influenced by the imperative of promoting externally‐oriented economic growth. As a result, the prioritization of resource allocation for urban development is tilted toward the need of attracting and retaining foreign investment, and the formation of the emergent urban social space follows closely the interplay between the interests of dominant players in the increasingly marketized economic process. A major consequence of this is a segregation of urban life along the lines of international and domestic division of labor, where the benefits of urban development accrue differentially to various urban residents according to the relative scarcity of the economic factors that they possess.