This thesis is a study of health policy, as well as a study on social inequality. It studies who gets what in China’s market transition, and how the state policy legitimised and institutionalised certain social inequalities. The thesis’ findings parallel what the literature suggests for other transitional societies. Analysis of the new health care policy clearly shows the discontinuity in the state’s commitment to equity, which is a common phenomenon in transitional Asia as well as in Eastern Europe. Through analyzing a specific state redistributive policy and its implementation in one Chinese city, this thesis explores the state’s important role in shaping social stratification and inequality. This study examines the state policy’s direct impact on inequality with respect to health care access in China. It is one of the first analyses of the social impact of the most recent health care financing system reform in urban China.