China's urban-rural disparities are a fundamental source of China's overall educational inequalities. This article addresses the issue with data collected through interviews with members at various Chinese higher education institutions. It interrogates China's current policies together with the socio-political institutional arrangements that underlie them and assesses the effectiveness of existing schemes to support higher education students. Based on China's experience, it challenges market transition theory's claim and debates the classical economic theory which postulates that expansion of education will reduce inequality. Believing that the educational gap is only part of China's urban-rural disparities, of which many resulted from social institutional arrangements, it calls for changes to established institutions and a reconsideration of the role of private financing mainly through tuition fees.