We investigate the consequences of imperfect factor market development for farm efficiency in North China. We estimate the extent to which an inverse relationship in farm productivity can be attributed to the administrative (as opposed to market) allocation of land, combined with unevenly developed off-farm opportunities. Using a new household survey, we find considerable inefficiency in the use of labour. This inefficiency is alleviated by external labour markets and, to a limited degree, by administrative reallocations. The reallocations do not go far enough, however, which raises important questions about constraints on rental activity and property rights formation more generally. JEL Classification: Q15, O12