China’s rapid urbanization has been fueled by the largest rural-to-urban migration in human history, fundamentally transforming the nation’s socioeconomic fabric. While this mass migration has been a key driver of China’s economic miracle-supplying cheap labor for urban industries and services—it has simultaneously created complex governance dilemmas. The persistent hukou (household registration) system, originally designed during the planned economy era, functions as an institutional barrier that perpetuates urban–rural disparities. Despite gradual reforms, the system continues to categorize citizens into unequal social strata, denying rural migrants’ equal access to public services and social welfare. These institutional constraints have created a paradoxical situation where millions of migrants physically reside in cities but remain socially and politically marginalized. The resulting “floating population” phenomenon poses fundamental challenges to urban governance models, requiring innovative approaches to social integration, public service delivery, and community development. The demographic pressures are particularly acute in China’s megacities, where concentrated migrant populations have led to spatial segregation and the emergence of urban villages, strained infrastructure in education and healthcare systems and new patterns of social inequality that intersect with regional and generational divides. Recent policy experiments with hukou reforms in second-tier cities and the development of “new citizen” programs suggest potential pathways forward, though systemic solutions remain constrained by fiscal decentralization and local protectionism.