According to a report released by PREM entitled Rising Income Inequality in China: A Race to the Top, income inequality in China has increased at rapid rates in the past two decades, as noted in Figure 1:
At the same time, strong growth has meant that all income groups have seen pretty substantial economic gains. Authors Luo and Zhu explain:
The dynamics of divergence across these sub-national areas have taken the form of a "race to the top"—meaning that all segments of the population, including the poor with low education in lagging inland rural areas, have experienced gains in average income
Moreover:
for all eight provinces, rural poverty headcount more than halved from 50.1% in 1989 to 22.4% in 2004; urban poverty headcount fell by a-third from 19.0% in 1989 to 13.5% in 2004
Coupled with these phenomena, however, is an even more interesting one: as income inequality has grown in China, the distribution of capital in the form of education has actually decreased. In other words, access to education has become highly concentrated in wealthier coastal and urban areas and is a fundamental factor underlying the surge in income inequality. Indeed, the increase in returns to education often initially leads to an increase in inequality. As David Dollar observes, however, such changes will ultimately tend to reduce inequality if equality of opportunity, especially equality in access to education, can be achieved over time.
Long story short: poverty reduction occurs not only when a country opens its economy to the world, but also when it is able to support a sound education system and an educated populace.