Abstract:China's household registration system can date from a special historical context. This administrative system restricts the free flow of population, which, in essence, conflicts with urban development. In the course of the institutional change, system reform falls behind the changes of the development context, and the GDP-oriented strategy of the government advocating developmentalism. Due to the factors such as misunderstanding of the development of megacities, household registration system continues to follow the old paths, which creates a self-reinforcing effect upon itself, and thus makes a major barrier to urbanization and also results in slow progress in the household registration system in megacities. Reviewing the history of Shenzhen household registration system reform, the author discovers Shenzhen is significantly different from other cities at the starting point of the system, and that the broader institutional?environment and the special state of the city also make it possible for the administrators to conduct more inclusive and open reform on the household registration system. This paper argues that the policy orientation of household registration system reform lies in the simultaneous promotion of interest diffusion and interest diversion, the balance between the inclusiveness and absorptiveness of the system, and the reasonable balance between instrumental objectives and objectives of value.