China’s two greatest cities are struggling with modern design under the long shadows of their historic past. As their populations swell (Beijing has more than 11 million inhabitants; Shanghai, more than 13 million), government incentives continue to provide unprecedented opportunities for developers and architects from around the world. Many areas of both cities have changed beyond recognition. It’s tempting to regard these new urban landscapes as chaotic places that reflect the worst of imported Western city planning: relentless sprawl, choked highways and the disappearance of history, culture and community. Yet in terms of design, Shanghai and Beijing are starting to embrace the good–not just the bad and the ugly.

Shanghai’s passion for tall buildings, for instance, is essential to sustaining its booming population efficiently. Among the global talents who’ve been drawn to China, architects Kohn Pedersen Fox (KPF) of New York have designed what may become the world’s tallest building there: the striking World Financial Center in Pudong will top out at 1,509 feet in 2008. Also going up is a 43-story office building designed by New York architect Li Chung (Sandi) Pei, son of I. M. Pei–which will include a small tree-lined promenade, something sorely needed in Pudong.

Beijing officials, mindful of the global spotlight that will be turned on their city with the 2008 Olympics, are in the midst of a massive building effort that will likely cost more than $20 billion. Several key commissions have gone to avant-garde European architects. Rem Koolhaas of the Netherlands has created a stunning scheme for the $600 million broadcasting headquarters of CCTV: a 5.5 million-square-foot structure in the form of a continuous loop with a huge opening in the middle. His fellow Pritzker Prize winners Herzog & de Meuron of Switzerland won the competition for the $500 million main Olympic stadium, with a design that looks like a gigantic bird’s nest. “It’s an architect’s dream to work in China,” says Zhang Xin, CEO of SoHo China, one of the most progressive and creative developers in the country. “Nowhere else offers the scale that Chinese cities do.”

Exposure to global architecture and ideas is slowly creating a more sophisticated design culture in the People’s Republic. Chang Qing, 46, chairman of the architecture department at Tongji University in Shanghai, recalls his student days in the late ’70s: “We didn’t have any contact with the rest of the world.” Now he hosts frequent exchanges with architects from Europe and America. And many more designers from China are studying abroad or working at leading international firms. “Architecture is improving because there’s more competition,” says Venezuelan architect Antonio Ochoa, who’s lived and worked in Beijing for 10 years.

A homegrown talent pool is emerging. Outside Beijing an upscale housing complex called Commune by the Wall showcases the gifts of young Asian architects, including two from China and one from Hong Kong. The dozen villas, each wildly varied in materials and plan, were commissioned by SoHo China, and were included in last year’s Venice Biennale. “We wanted to project the best to the world scene,” says developer Zhang, “and to make Chinese think about the importance of architecture.”

But while examples of good design increase, the battle over planning and historical preservation rages. In Shanghai, 50 percent of the building stock that existed in 1949 has been razed–including at least 39 structures supposedly on a government list of protected buildings, according to Tess Johnston, an American expat who’s been documenting disappearing colonial structures. “All historic buildings are in good locations [in Shanghai], so the value of the land is very high,” notes Tongji University’s Chang. Critics fear Shanghai will become as bereft of historic architecture as Hong Kong or Singapore. Yet there are glimmers of hope. The old colonial buildings of the Bund–which was first threatened with demolition during the Cultural Revolution–are now likely to be cleaned up, not destroyed.

Pockets of preservation won’t stop the tidal wave of redevelopment and new infrastructure–oceans of concrete fashioned into new highways, subways, light rail, overpasses, bridges and airports. But what could shift the direction of Beijing and Shanghai is future planning. In parts of Shanghai, mixed-use neighborhoods hum 24/7 with restaurants, apartments, clubs, shops and offices all intermingling. In the newly developing Central Business District of Beijing, “they’re trying to create an area where you can walk around,” says SoHo China’s Zhang. To William Pedersen, a partner in KPF, Chinese ingenuity is just beginning to be unleashed in the cities. “One can only imagine what’s going to happen in China, when this whole creative energy of these amazingly entrepreneurial people is liberated,” he says. “This energy is going to find its expression, obviously, in the arts and in architecture.” To what extent the emerging generation of designers can alter the course of rampant development isn’t yet clear, but the opportunity to create a new kind of city is as great in China today as anywhere else on earth.