This chapter discusses the potential bias of existing estimates of income inequality in China and considers how inequality would be affected by the recent changes in labour market and social policies. Taking advantage of national data, the authors calculate biased and unbiased inequality indices respectively and find that ignoring the data on migrant workers would lead to overestimating inequality. In addition, poverty trends and China’s social assistance system are also discussed. In addition to describing institutional changes in the Chinese labour market, the chapter also tests the impact of these changes on inequality, and concludes that recent labour market changes are promoting income equality.