Abstract:The traditional production function ignores the endogeneity of technological progress, so the return on capital according to the marginal output is lower than the actual value. In term of a new method, this paper studies regional difference and convergence of the returns on capital of manufacturing industry in China. The following conclusions are made. First, on the whole, the overall return on capital is 8.79% in the period from 2001 to 2015. Second, returns on capital are significantly different according to the regions, that is, the eastern coastal areas have relatively high rates of return on capital while the central and western regions have relatively low. Third, the analysis of convergence indicates that the growth rate of return on regional capital is negatively correlated with the level value. Finally, TFP has a significant positive impact on the growth of capital return as a major factor while housing price and capital deepening are negative.