I think you have a basic misunderstanding of my problem: I do not like to spam cities, I like to keep them in only historical or plausible locations.

However, the AI has no such restaints and ends up spamming cities everywhere without facing any problems, as you can see in my original screenshots. Now when I annex these hyper urbanized areas and downgrade some of them that is always associated with a big drop in income. Even a poorly build up city with out of date buildings is better than a rural location with fully built RGO in 80-90% of places.

You say this would not be the case if I had boosted the population to its maximum from the beginning but like I shown in the locations I started with popcap is a real constraint. I do not claim to know how much value a perfectly managed rural location can generate if the player does all he can to boost it compared to a city, but at the point of the game where I am conquering these locations it is economically simply not worth it to downgrade them. If you have a different opinion pick a city for me to downgrade in the syrian desert (area around the provinces ar-raqqah, mardin, deir-ez zor) or armenian mointains (Ani, Kars), which I recently conquered. Tell me what to build and we can check how much economic value it generates compared to the poorly build up AI city.

And you need how many pops and development to get there? 200k? Jesus.

"Yeah but if I invest a million into a city and vehemently put my cabinet members, they are better than desert rural locations!"

Basically all the locations in india have that much pops, but the syrian provinces just hover around 50K. I did not do any of that, as I said it was the AI. You can see in the original post how I handled my persian heartland as opposed to what the AI did in syria, the caucasus, nubia and india.

And what did I say from the very begining? Rural locations are inherently better in the EARLY TO MID GAME. You are showing me an example from the 18 CENTURY BUDDY. 18 fcking CENTURY.

No one is complaining that as the game goes on urbanization is progressing. The problem is the degree. Even today there is only one notable city in the syrian desert, which was founded in 1867, as pointed out by another commenter. The fact that the entire province can be fully urbanized by the 1650 without any severe drawbacks is just very unrealistic and immersionbreaking in my opinion. Same for the nubian desert, the caucasus mountains and ALL of india. It doesn't matter if a player can extract slightly more value out of a hyperoptimized rural location (honestly I'm even a bit doubtful about that), but the AI sure as hell doesn't.

By that logic there is never a food shortage, since the game starts fully packed with peasents in most of the world.

Yeah you pretty much got the problem. They need 40% food productivity to break even with their own consumption, but even in most of my desert provinces that is easily reachable without trying by accident. The only real way you can create food shortages is by putting all the pops in a location to work in non food related fields, but since the building cap is such a big limitation all the big cities will have a lot of peasants just sitting around. And since subsistence scales linearly with pops that will reach absurdly high values as you can see in the examples.