Abstract: To solve the problem of distinguishing corrosion defects inside and outside the metal pipeline, a brand-new pulsed eddy current (PEC) system based on differential conductivity is established. The 50% duty cycle square wave is used as driving signal. A measuring bridge arm and a reference bridge arm composed of eddy current coil and series resistance are designed respectively. Complex programmable logic device (CPLD) is used to get differential conductance by using differential current divided by differential voltage. At last the eddy current signal sampling sequence is developed. A dynamic testing fixture with artificial defects carved on the pipeline is used to validate PEC system's accuracy. The differential conductance signal is displayed on the oscilloscope. Results show that the inside defect had two peaks, positive peak and negative peak, but the outside defect only had one positive peak. We can conclude that the brand-new PEC system has high accuracy in distinguishing inside and outside defects.