China’s recent accession to the WTO is expected to accelerate its integration into the world economy, which aggravates concerns over the impact of globalization on the already rising inter-region income inequality in China. This paper discusses China’s globalization process and estimates an income generating function, incorporating trade and FDI variables. It then applies the newly developed shapley value decomposition technique to quantify the contributions of globalization, along with other variables, to regional inequality. [Discussion Paper No. 2004/10]