After spending a couple decades encouraging urbanization/clustering of workers they realize they’ve created some real dense problems. They still have 800 million people on the farm and now realize they need to keep them there. The whole reform package, including the extra child, are oriented toward taking the pressure off the big towns.
Do you recall where you saw that number? 300m is what I've read. China's cities are somewhat densely populated, but nowhere near their US counterparts. Shanghai's population density is 1/3 of NYC's. Beijing's is 1/3 of DC's.