China's inter-provincial output and livelihood disparities moved in different directions in the pre-reform and the reform periods. This paper sets out to identify the driving forces behind these developments. It suggests that in the transition to a market system, China has succeeded in narrowing inter-provincial output disparities by pursuing outward-looking and de-nationalisation oriented industrialisation, but has failed to prevent a widening of inter-provincial livelihood disparities owing to the weakening of government intervention in the form of regional income redistribution.

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