China has departed from the East Asian model of development by letting inequality to rise to a high level, which is contributing to China’s current problems of macroeconomic imbalance, declining efficiency of capital, and rising social tensions. If inequality persists, China may get caught in the "inequality-trap," which may then lead it to the "middle income trap (MIT)." Fortunately, China still has the levers to pull to reduce inequality and avoid MIT. Measures along both the "wage route" and the "redistributive route" can be adopted for this purpose. In addition, China may pursue the "cooperative route" to more equitable distribution. 1. Introduction -- 2. China enters the Middle Income Group -- 3. The Middle Income Trap -- 4. Inequality and Growth -- 5. Inequality and the Middle Income Trap -- 6. China’s inequality in a comparative perspective -- 7. Causes of China’s inequality -- 8. China’s inequality problem and its consequences -- 9. Different ways to address inequality -- 10. .Conclusions.