This article examines the effects of China’s household registration (hukou) system, which divides the population into rural and urban sectors with differential benefits and entitlements, on the link between intergenerational social mobility and people’s well-being. Using China General Social Surveys of 2005 and 2011, we find that upward mobility has a similarly positive effect in the urban and the rural sectors but downward mobility has a markedly negative effect chiefly in the rural sector. We propose a thesis of ‘asymmetrical permeability’ to account for the findings. In the context of rapid economic development and staggering institutional reform, the upwardly mobile in both sectors enjoy ample socio-economic resources as provided by the advantaged destination classes whereas the downwardly mobile depend very much on the hukou status they have. In the urban but not rural sector, families in advantaged positions are able to protect the downwardly mobile offspring in their well-being. It is therefore the differences in the hukou system that explain the differential acculturation.