We examine the extent to which self-reported health and psychosocial health are affected by relative economic status in China, for the first time examining the importance of reference groups not defined by geographic location or demographic characteristics. We propose a methodology to address potential bias from subjective reporting biases and control for unobserved community characteristics. Analyzing a nationally representative data set from China, our findings support the relative deprivation hypothesis and suggest that relatives and classmates are salient reference groups for urban residents and neighbors are important for rural residents. (Contains 6 tables, 1 figure and 16 footnotes.)