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Grassroots village organizations are crucial for understanding the interplay between the decentralization of state power and growing income inequality in periurban China. Based on a study of 380 shareholding cooperatives and 43 administrative villages in Guangdong, we examine how state policy has interacted with village institutions to determine the management and distribution of collective income among villagers. Our findings suggest that the decentralization of power over collective asset management and distribution to these grassroots organizations did not cause a retreat in the state's capacity for strategic intervention and local regulatory controls. Rather, the state made continued attempts to regain power over village governance through institutional formalization. Such interventions enhanced the access of villagers to state welfare. However, they worsened income disparities among villagers by undermining the village redistributive mechanism based on informal rules. [ABSTRACT FROM AUTHOR]