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Since the 1990s, the introduction of a market economy and the process of rapid urbanization have been accompanied by a new urban poverty related to lay-offs and unemployment as well as by large-scale rural–urban migration, which is different from the traditional urban poverty of the ‘Three Nos’ (no relatives or dependants, no working capacity and no source of income). This article focuses on new urban poverty in China under market transition and discusses the causes of poverty creation. Instead of considering Chinese new urban poverty only as a result of market mechanisms, it argues that the state as the manipulator of institutions and policies does matter in the creation of new urban poverty, and that the cleavages between the old and new institutions further intensify it. Specifically, the following aspects of the creation of new urban poverty are examined in detail: the adjustment of industrial policy, the reform of state-owned enterprises, evolution of the household registration system, and the transformation of the welfare state. [ABSTRACT FROM AUTHOR]