Official tabulations from household survey data suggest rising income inequality in post-reform
rural China, and this trend has been of public concern. However, the structural changes in the
Chinese rural economy had not been properly reflected in the methods used for processing the raw
survey data. Using micro data for four provinces, we find that two-thirds of the conventionally
measured increase in inequality 1985-90 vanishes when market-based valuation methods are used
and allowances are made for regional cost-of-living differences. The data revisions also suggest
somewhat different explanations for rising inequality. Non-farm income was secondary to grain
production. Higher returns to farm land over time were inequality-increasing while lower returns
to physical capital reduced inequality, as did private transfers.