In the early 1950?s a universal registration system called the Hukou system was established in China. Although its original purpose was to simply study demographics and mobility in the country, the classification of individuals eventually progressed into a means by which the national government could monitor and control rural-urban migration within the country. Based on this categorization and the highly socialist structure of the country, the government was able to appropriate goods and services ranging from medical benefits to food rations to certain portions of the population thereby creating a significant hierarchical rift between the rural and urban populace. The purpose of our study was twofold: i) to examine the validity and effectiveness of the Hukou system in the government?s aim to promote industrialization and development in the past and ii) to analyze the implications of the Hukou system in the future based on prevalent economic conditions in China and propose alternative policies in response to these conditions. Although numerically immeasurable, we find that some positive correlation between the system and the rate of industrialization does exist. However, given the recent situation the underutilization of labor and hindrances in labor mobility caused by the system, we suggest that the Hukou system be removed. Furthermore, we suggest three policies to address the shortcomings in agricultural development and labor difficulties linked to the Hukou system?s existence in the past.