This paper develops a new approach to decompose and present the Chinese Gini
coefficient from 1978 to 2005. In line with calculation, we find that the contribution of
the intra-rural Gini coefficient to the nationwide Gini coefficient has declined since 1983,
while the intra-urban Gini coefficient plays an increasingly important role in the national
income inequality. However, the current dominant factor of the Chinese Gini coefficient
is the Gini coefficient between rural and urban areas, which drives the trend of
nationwide Gini coefficient. We argue that the improvement of Chinese income disparity
should focus on narrowing the income gap between rural and urban areas.