This paper examines the growth performance, income inequality, and poverty
reduction in eight Chinese provinces in rural and urban areas during the period of 1989-2004
using China Economic, Population, Nutrition and Health Survey data. It shows that thanks to
the efficiency gain as reforms deepened, income growth was high. Poverty reduction could
have been even more satisfactory if it was not for the sharp increase over time in income
inequality, especially in urban areas and among the richest. A decomposition analysis based
on household income determination suggests that the total income changes over these 15
years can be largely attributed to the increase in returns to education and difference in job
remuneration. Reducing inequality of opportunity and improving access to basic education,
especially in poor rural areas, is hence important for enhancing growth, lowering inequality,
and fighting against poverty.