This paper examines the impact of economic transition and health sector reform on health equities in the urban and rural populations of China in the 1990s. Since 1980, China has experienced a rapid economic development and fundamental transformation of its society. Three secondary data sources were used as the basis for the analysis and discussion: mortality data from the National Death Notification System; infant mortality from the National Maternal and Child Health Surveillance System; and morbidity, health care utilization and financing data from the National Health Household Interview Surveys. The analysis revealed a very complex picture with: general mortality rates decreasing in both urban and rural populations, but the differences between urban and rural increasing; declining infant mortality rates with narrowing of the urban–rural gap; health care needs declining in both urban and rural populations, but more rapidly in the urban areas; health service payments increasing in both urban and rural areas, while, at the same time, health insurance coverage decreased. The analysis suggests that despite overall improvements in the population’s health status, the economic and health system policy reforms are leading to increased inequities in health care. The lowest income quintiles in both urban and rural areas are receiving less health care compared with their needs in 1998 than in 1993, and the urban–rural divide, in particular with regard to receiving inpatient health care, is widening appreciably. The reform of the health insurance system, combined with the market setting of prices for care, have had profound implications for all population groups, in particular the lower income segments and the rural populations. During the period 1993–98 the proportion of the urban population that had to cover the increasing cost of medical care themselves doubled.