China's Household Registration System (HRS) has been considered to be a major obstacle to labor mobility. To facilitate the shifting of agricultural surplus labor to the nonagricultural sector, scholars argue that the Chinese government has to abolish the HRS and accelerate urbanization. By comparing China in the reform era with Taiwan during the period of economic takeoff, this paper suggests that it is not institutional barriers but employment conditions that hinder labor mobility in China. Because the nonagricultural sector does not have sufficient capacity to absorb rural surplus labor, abolishing the HRS may not achieve its policy objective. Instead, providing more non-farm jobs will contribute to the HRS reform.