China's size and the nature of its integration into the world economy imply that rural development in this country has to respond to big challenges that cannot be solved by resorting to government intervention but instead require the operation of well -functioning markets. To assess the links between land and labor markets market imperfections, institutional rigidities, or other entry barriers either prevent market s from operating or lead to undesirable outcomes, we use a large nationally data set that is representative for China's rural areas. We find that households with limited endowments of land and higher agricultural ability (and from villages with less restriction on land transfer in terms of to whom to rent and types of land to rent) tend to rent in land. And a well functioning of land transfer markets facilitates the emergence of labor markets.