Abstract: Based on Chinese enterprise survey collected by the World Bank, this paper examines the impact of trade liberalization on wage inequality. Empirical results show that trade liberalization significantly increases wage inequality. Firm’s intermediate inputs importing behavior increases highest to lowest wage ratio among ordinary workers by 50%, and increases wage gap between general manager and mid-level manager by 30%, and enlarges wage inequality between mid-level manager and ordinary worker by 12% to 20%. Further analysis suggests that firms’ trade participation is linked to higher skilled labor demand, more use of performance pay scheme, more R&D expenditure, more on-the-job training opportunities, and more usage of computer, which all contribute to rising wage inequality.