Remarkable economic growth in China over the past two decades fails to reduce rural-urban income inequality. Furthermore, unbalanced development has led to a serious regional divide. These two aspects of inequality greatly undermine the quality of China's economic performance, as further growth may be impeded if inequality cannot be contained. However, the extent of rural-urban and regional divide has not been systematically studied in the literature because most available works are based either on scattered data or on a limited time period. This paper combines both convergence and inequality decomposition analyses on four economic variables: GDP, income, total expenditures and food expenditures, by use of provincial level and household level data during the period 1978-95. The results have important political and economic implications.