Based on a comparative study of New-Pudong (East Shanghai) and Old-Puxi (West Shanghai) in their respective ability to absorb rural migrants, the very essence of urbanization, this paper finds that, constrained by the current hukou (household registration) system and land tenure system, although New-Pudong has emerged as one of the most modernized urban areas in the world, it did so under an urbanization model that is government-dominant and characterized by high land-intensity and capital-intensity. This model represents a serious mismatch in terms of China’s factor endowment that is characterized with a large but relatively poor rural population. In sharp contrast, guided by the market mechanism under private land ownership and free migration, Old-Puxi emerged as an urbanization model that was very adaptable to China’s factor endowment and stage of development. Therefore, as a model of endogenous urbanization, Old-Puxi is more efficient and inclusive, at the same time more sustainable economically and environmentally, and for this reason more applicable to China at a time when China needs to urbanize most of its rural population urgently to avoid the further worsening of the rural/urban divide and income disparity.