This study investigates whether China has achieved its potential in grain production fully with the existing technology. A stochastic varying coefficients frontier approach is applied on recent household survey data of 1000 grain farmers covering the periods 1993-95. The results indicate that, on average, the actual grain outputs are about 15-35% lower than the potential output. The analysis has identified households' human capital stock, land size and market-oriented reform as important factors contributing positively to grain production efficiency.