Risk sharing and monetary policy play a key role in dealing with different types of shocks affecting personal consumption in the presence of regional heterogeneity. This paper explores the impact of various degrees and channels of risk sharing on monetary policy transmission for two separate regional divisions in China over the period 2001-2019. We first estimate the amount of risk sharing among prefecture-level cities and between provinces, and then interact it with a monetary policy shock to investigate the joint effect on output and prices. Our results show that the fiscal and factor market channel smooths a large part of personal consumption among prefecture-level cities within a province as well as between provinces, while the credit market plays a relatively minor role. We find that high risk sharing constraints the impact of monetary shocks on GDP, while amplifying their impact on prices mostly between provinces. A significant regional divide is observed where high risk sharing hampers monetary transmission in coastal provinces, while facilitating it in interior provinces. These patterns appear to be driven by differences in the institutional development across regions, especially with respect to factor market flexibility.