China has departed from the East Asian development model by letting inequality rise to a high level, which is now contributing to China’s current problems of macroeconomic imbalance, declining efficiency of capital, and rising social tensions. If inequality persists, China may get caught in the “inequality-trap,” which may then lead to the middle income trap (MIT). Fortunately, China still has the levers to pull to reduce inequality and avoid the MIT. Measures along both the “wage route” and the “redistributive route” can be adopted for this purpose. In addition, China may pursue the “cooperative route” to more equitable distribution.