This study focuses on China's industrial transformation and urban income inequality. It is shown that between 2011 and 2020, improvements in China's industrial structure have a significant positive influence on lowering income gaps between urban and rural areas when used in conjunction with the empirical research approach. The mechanical study shows that the urban population impacts this causation. Rural-to-urban economic gaps have been reduced through modernisation in different parts of the country. The result remains the same even if the urban-rural consumption gap is used as a proxy for income discrepancy. The mechanism for the industrial structure upgrading model (MISUM) is proposed in this article for the modern circulation industry. Key contributions include: (1) environmental rules in these components have no impact on each other, but the updating of industrial buildings indicates a substantial location-specific dependence; (2) environmental standards have impacts on industrial structures throughout provinces; and (3) environmental standards have a long-term qualifying impact on the industrial structures. This essay focuses on combining environmental regulation with industrial expansion in different regions. In this study, government environmental requirements for industrial structural improvements are shown to be in operation. The test results show the MISUM has been described with high accuracy of 94.2%, carbon emission level of 18%, soil emission level of 11% and efficiency ratio of 97.8% compared to other methods.