China's household registration system is the central element in a policy of rapid industrialization with low urbanization. Figures on the non-agricultural population show that the system was initially successful, but less so during the 1980s. As a result, a number of reforms were introduced, which are described in some detail here. The registration system must be viewed as playing three interrelated roles: it is an instrument of development policy, aimed at keeping urban populations small while fostering industrial development; a social institution which rigidly divides Chinese society into a rural and an urban segment; and an instrument of state control, which the state employs to cultivate client groups. This article further argues that the contradiction between the need to adapt the system to changing realities, dictated by its developmental role, and the tenacity of the vested interests inherent in the social institutional role of the system, form a major obstacle to fundamental reform.