China’s hukou (household registration) system has undergone reforms aimed at addressing the large rural–urban divide. Importantly, it no longer distinguishes between agricultural and nonagricultural hukou. However, this reform is widely interpreted as being ‘soft’ and having little impact on reducing the rural–urban divide due to its symbolic nature. Still, this study takes a legal perspective and conceptualizes the reform as being in the form of soft law. It then applies the theory of judicial activism and proposes that soft law can be actively utilized by local courts in China as a means of reducing the rural–urban divide. Based on a novel dataset of court judgements in traffic dispute lawsuits between 2005 and 2019, this study shows that many local courts, especially in Guizhou, Zhejiang, and Jiangsu Province, have generated a substantial impact of the soft hukou reform: they invoked this reform as the reason for their decision to grant rural traffic casualties equal personal injury compensation rights as urban residents, despite no formal legislation from the national government at the time. These findings underscore the importance of investigating judicial activism at the local level and studying how local courts can creatively utilize soft law to engage in judicial activism and reduce discrimination.