This paper examines the growth performance and income inequality in eight Chinese provinces during the period of 1989–2006 using the China Health and Nutrition Survey data. It shows that income grew for all segments of the population, and as a result, poverty incidence has fallen. However, income growth has been uneven across different segments of the population - most rapidly in coastal areas and among the better educated – and followed a different pattern over time along with changes in distribution. A decomposition analysis based on household income determination suggests that income growth can largely be attributed to the increase in returns to education and to the shift of employment into secondary and tertiary sectors. As education is a key factor of production and the differential of returns to education increases over time, the narrowing of gaps in education can contribute to harmonizing income distribution in the long run.