Based on the review of hukou system's building and reform in China, this article argues that the outstanding institutional obstacle for further hukou system reform is the decentralization of welfare financing but not rural-urban segmentation. Hukou system reform is particularly difficult in large cities. Recent reforms at local level are encouraging, such as integration of rural-urban hukou registration, experiments of residence permit system, lowering and rationalizing preconditions for acquiring hukou of middle-large cities etc. While generally speaking, local authorities are passionate for hukou policies regarding migrants inside regions but not for inter-regional migrants. This article proposes not only the free movement of persons inside a region should be moved toward, but also a staged acquiring of local benefits for inter-regional migrants based on residence permit as managing tool should be adopted. It is necessary that central government should subsidize welfare for inter-regional migrants to facilitate such reform. Finally, the article gives some specific suggestions for implementing nation-wide residence permit system. <<