Get access



  • Note: We are grateful to Anthony Shorrocks and other participants of the UNU-WIDER project meeting, “Inequality and Poverty in China,” August 26–27, 2005, Helsinki, Finland, for their comments, and to two anonymous referees for their detailed suggestions. We thank the Swedish International Development Cooperation Agency (SIDA), Ford Foundation, Centre for International Governance Innovation (CIGI), and University of Western Ontario for funding that facilitated this work.

*Terry Sicular, Department of Economics, University of Western Ontario, London, Ontario, Canada N6A 5C2 (


Using new household survey data for 1995 and 2002, we investigate the size of China's urban–rural income gap, the gap's contribution to overall inequality in China, and the factors underlying the gap. Our analysis improves on past estimates by using a fuller measure of income, adjusting for spatial price differences and including migrants. Our methods include inequality decomposition by population subgroup and the Oaxaca–Blinder decomposition. Several key findings emerge. First, the adjustments substantially reduce China's urban–rural income gap and its contribution to inequality. Nevertheless, the gap remains large and has increased somewhat over time. Second, after controlling for household characteristics, location of residence remains the most important factor underlying the urban–rural income gap. The only household characteristic that contributes substantially to the gap is education. Differences in the endowments of, and returns to, other household characteristics such as family size and composition, landholdings, and Communist Party membership are relatively unimportant.