Currently, China is urbanizing its population at an unprecedented pace in human history. China's urbanization rate is expected to reach to 50% in 2010, reflecting that China has entered into a society of urban majority. In consideration of the massive surplus in the labor force in rural areas, the process of urbanization in China is far from complete and will continue over the next two decades. Under the effects of a unique "household registration system" and the rapidly evolving labor market, China's urbanization is facing more challenges than its predecessors of developed countries and its peers of developing countries. With the signs of frequent manpower shortages and rising labor costs in coastal regions in recent years, China's labor market has been deemed to pass the Lewisian turning point. Although the rapid economic growth and population aging are shaping the labor market in China, the household registration system still constitutes a barrier for the more efficient allocation of its labor force. This paper will examine the urbanization process in China and propose relevant new policies and systems to reconcile with the country's demographic trends and economic growth.