Former U.S. Treasury Secretary Hank Paulson said Tuesday that China’s rapidly urbanizing and environmentally conscious people is a central challenge to the country’s new regime.

The former Goldman Sachs CEO, who now runs a Chicago-based institute that promotes sustainable economic growth, said new Chinese President Xi Jinping is taking over an accelerating country still in need of major economic, political and environmental changes.

“Expectations are very high in the country. You’d have to look back and remember how high expectations were here after President Obama was elected,” Paulson told to a Jack Morton Auditorium crowd, adding that financial and land reforms had stalled under the previous regime.

First on Xi’s plate is addressing the population shift from the country’s poor countryside to its booming cities, Paulson said. He pointed to a need for a new urban sustainability model, and more open financial markets so lower class Chinese could accumulate more wealth.

“That’s the biggest economic event of the first part of this century, with another 300 million Chinese going to cities,” Paulson said. “The public is now demanding sustainable growth.”

And the stress of ballooning cities ­– where poor urban dwellers often burn cheap coal to stay warm – is also pressuring the country’s environment and dirtying the air, Paulson said.

Paulson’s remarks came on the heels of an University of Washington report presented Sunday in Beijing, which found that 1.2 million people died prematurely in China because of outdoor air pollution in 2010.

But, Paulson quipped, he had some anecdotal evidence that lavish spending from the country’s political elite was winding down.

“When I had lunch at the embassy a couple months ago, I came away a little bit hungry. Instead of eight courses, there were four courses and a soup,” he said.

That phrase – “four dishes and a soup” – was a catchphrase of Xi’s campaign, which stressed the leader’s push for austerity among the political elite.

The hour-long discussion, moderated by Fortune magazine’s managing editor Andy Serwer, followed an announcement from University President Steven Knapp that GW would be the sole educational partner at the Fortune Global Forum in Chengdu, China in June.

Knapp said the partnership would give students and faculty access to the forum’s educational material, like videos, and likely send professors to the event to speak on business and international issues.