China has achieved unprecedented success in economic growth since the initiation of economic reforms. The high growth could partly be attributed to the success in structural transformation of the economy. Another contributing factor may be the industrial upgrading of the manufacturing sector towards high value-added products. However, regional inequality in China has increased considerably behind the scenes. In order to have sustainable economic growth, it is thus crucial to investigate both the impacts of structural transformation and industrial upgrading on regional inequality. This paper contributes to the literature in the analysis of the structural transformation by employing a database at the county-level. Decompositions are performed for different spatial groupings so as to provide a clear view of evolution of regional inequality. In addition, the contributions of the major industries to inequality in industrialization are examined by using a database of value-added at the provincial level. The results may have important policy implications for the formulation of a comprehensive and coherent strategy in managing inequality while promoting structural transformation and industrial upgrading.