The literature indicates the problems in the data to calculate the Gini coefficient of Chinese residents’ income. Although many studies have tried to overcome the problem by decomposing the nationwide Gini ratio into urban and rural ones, the final results have been underestimated as a result of the overlapped term or residual in the decomposition. This paper analyses the effects of the overlap term on calculating the overall Gini coefficient by taking a statistical approach, and estimates Chinese Gini ratios from 1978 to 2006. We identify income disparity between rural and urban inhabitants as the dominant factor of nationwide income inequality. In addition, statistical approaches are employed to evaluate the effects of the urbanisation and rural-to-urban average income on the income inequality of the whole nation. The results show that accelerating the pace of urbanisation is the crucial to mitigate Chinese income disparity.