Over the past two decades, China has experienced rapid economic growth, which has also led to increasing social and economic inequality. A nation that once operated on the principle of egalitarianism, China today grapples with a level of inequality that exceeds that of most of its East Asian neighbors. In the 1980s, poverty was a problem limited primarily to rural areas, but it has recently spread to urban areas as well. Since the mid-1990s, urban poverty has increased at a very rapid rate under the influence of globalization (Fulong, Webster and Yuting 5). China's economic restructuring largely contributes to this phenomenon. The Chinese government officially recognized urban poverty as a problem in 2001 through a report prepared by the State Council (Fulong, Webster, and Yuting 15). The report also recognizes that the nation faces a new challenge in implementing social policies. Urban poverty results from changes in institutional patterns of crucial consumption areas such as housing, health care and education, combined with the loss of rights to urban space that occurs. during land appropriation. Despite the economic progress that China continues to experience, certain negative externalities have emerged. The income gap continues to widen, social protection declines, and unemployment rises (Fulong, Webster, and Yuting 21). There has been an increase in the number of urban poor, mainly made up of the unemployed, laid-off workers, urban migrants and retired workers. The violation of their civil rights and the government's failure to address social problems in their areas further aggravate their economic inadequacy (Fei 17). The urban poor in China are classified into two: the o...... middle of paper. ..... will fight fiercely against an increase in their contribution. China's leaders face a huge challenge in how to lead the nation as it shifts from an investment- and export-driven economy to a consumption-driven economy. The commitment to shift from a focus on GDP growth to people-driven growth requires the development of targeted policies that take into account the needs of all, both rural and urban. It should establish a resource framework focused on social protection programs such as health care and education, which will empower the urban poor and reduce inequality. Beijing should strive to ensure the successful implementation of the 12th Five-Year Plan; so far, its approach to boosting consumption has been quite effective. The transformative nature of this plan could be key to solving China's growing problem of urban poverty and inequality..