This paper analyzes changes in the gender earnings gap in urban China during 1988-2004 using urban household survey data. The mean female/male earnings ratio declined by about 10.1 percentage points from 86.3% in 1988 to 76.2% in 2004. The main contributors to this diverging trend are the rapid increases in returns to both observed and unobserved skills that weigh the skill deficit of women more heavily. Women on the average also lose due to an enlarged gap in unobserved skills or increased discrimination. Although the gender gap in observed skills such as
education narrows over the years, which works to reduce gender gap, the effect is not strong enough to offset the negative forces. We also examine changes in gender earnings gap in the bottom and top percentiles of the earnings distribution and changes in gender earnings inequality in four sub-periods, namely, 1988-1994, 1994-1998, 1998-2001, and 2001-2004.