| Abstract | With the establishment of Chinese strategy of Comprehensively Deepening Reform, the development of service sector, especially the modern service sector, has been the key of economic transformation and industrial upgrading. However, Baumol – Fuchs Hypothesis still dominates in academia, i.e. low productivity in service sector, and vigorously developing service sector will pull down the overall economic growth. Therefore, with the aid of the innovation of methodology we use the inter-provincial panel data from 1998 to 2012 to measure productivity and its change in service sector and industrial sector. Conclusions show that: under the consensual framework, service sector productivity (efficiency) is higher than the industrial sector on average, but TFP growth in service sector is less than industrial sector. However, in recent years, the service sector TFP growth has a tendency to catch up with industrial sector, which suggests that the Baumol – Fuchs Hypothesis does not hold in current China. In addition, the degree of industrialization has a positive impact on productivity, but little effect on TFP growth. |