Extending the income dynamics approach in Quah(2003),the present paper studies the enlarging income inequality in China over the past three decades from the viewpoint of rural-urban migration and economic transition.We establish non-parametric estimations of rural and urban income distribution functions in China,and aggregate a population- weighted,nationwide income distribution function taking into account rural-urban differences in technological progress and price indexes.We calculate 12 inequality indexes through non-parametric estimation to overcome the biases in existing parametric estimation and,therefore,provide more accurate measurement of income inequality.Policy implications have been drawn based on our research. Extending the income dynamics approach in Quah (2003), the present paper studies the enlarging income inequality in China over the past three decades from the viewpoint of rural-urban migration and economic transition. We establish non-parametric estimations of rural and urban income distribution functions in China, and aggregate a population- weighted, nationwide income distribution function taking into account rural-urban differences in technological progress and price indexes.We calculate 12 inequality indexes through non-parametric estimation to overcome the biases in existing parametric estimation and, therefore , provide more accurate measurement of income inequality. Policy implications have been drawn based on our research.