The distributional outcomes of monetary policy have garnered increasing attention from the academic and political communities in recent years. While there has been significant progress on both the theoretical and methodological design of studies on advanced economies, research on China has been limited in scope and complexity, partly because of the country’s opaque and unique monetary policy framework. In this paper, I investigate the distributional effects of monetary policy shocks in China from 2003 to 2021, during which the country’s central bank began to converge towards a standard interest-rate based regime. I start by constructing a novel monetary policy shock series for China using the high-frequency external instrument identification (HFI) method that addresses endogeneity concerns between macroeconomic factors and policy decisions. I then analyze the impulse responses of income measures and asset market returns to these shocks in a structural vector autoregression (SVAR) system identified by short-run restrictions using Cholesky decomposition. I find that contractionary monetary policy shocks have a negative impact on the state of inequality in China, by increasing the relative share of income at the top and decreasing the share at the bottom of the distribution. Adverse effects are stronger for lower income groups who derive most of their income from labor and business operations, which experience large and persistent negative effects from an unanticipated rate hike. Meanwhile, the impacts on top earners are neutral or modestly positive, since their income portfolios are diversified by property holdings.