A nationally representative rural labour force survey of China is analysed to explore the allocation of labour among farming, local non-farming and temporary migration activities. Various tests of labour market segmentation are conducted. The estimated returns to labour off the farm greatly exceed those on the farm. The personal and household determinants of activities, and of days worked in them, are examined for demand or supply constraints on employment; some results are consistent with the former. The relationship between days worked off and on the farm suggests that the opportunity cost to households of non-farm work is very low. The evidence is consistent with there being rationing of non-farm employment. However, tastes, imperfect information, imperfect capital markets, risk-aversion and transaction costs are also relevant. The overcoming of the obstacles to diversification away from farming is important for rural development in China.