Previous studies on internal migration in China have failed to capture both the heterogeneity of migratory behaviours and migration processes and the rapidly changing migration circumstances. Using microdata from China's 1990 population census and the 1% population sample survey of 2005, this paper examines whether and how destination choices differ between permanent migrants (with hukou at the destination) and temporary migrants (without hukou at the destination) and how such differentials change between 1985 and 2005. We use the conditional logit model to gauge the effect of the economic transition and hukou reforms and employ the mixed model to study how hukou restrictions are intertwined with migrants' socio‐economic status to influence the destination choices. Temporary migrants are found to be increasingly concentrated in southeast coastal provinces with better employment opportunities, whereas permanent migrants tend to move in the opposite direction, to south‐central and southwestern provinces with a low entry barrier and numerous return migrants. Modelling results reveal that over time, both types of migrants are increasingly responsive to interregional wage differentials, and that the hukou system continues to matter in shaping destination choices. Moreover, the localisation of the hukou regulation and the commodification of hukou in recent years have resulted in an increased concentration of highly skilled migrants relative to low‐skilled migrants in the most prosperous regions. Our findings suggest that state intervention is still intertwined with market mechanism to influence migration in reform‐era China, and that the state should not be seen as a unitary entity when understanding recent hukou reforms. Copyright © 2015 John Wiley & Sons, Ltd.