Economic growth in China’s agricultural sector lags behind growth in industry and services, creating an ever widening rural–urban income gap. Development of the non-agricultural sectors offers new opportunities for farmers in China’s more advanced provinces such as Zhejiang. Increased income in the urban sector creates markets for new products, and migrating farmers rent their land to those staying. Until now, the prevailing rice-based systems have been managed mainly using manual labour and animal traction, but the larger farms resulting from migration may facilitate, or even require mechanization. In this study, we use a simulation model of the farm household to analyse the effects of increasing farm size and the transition from rice to vegetable production, while also studying the effects of mechanization.Our results show that at the present scale of farming, the dual government objectives of increasing rural incomes and increasing rice production are clearly conflicting. Farmers can generate incomes comparable to non-farm wages, but only when they switch completely to production of more remunerative crops, such as vegetables. At larger farm sizes, however, labour constraints inhibit farmers from specialization in non-rice crops, and rising per capita incomes and increasing rice production go hand in hand. Mechanization is necessary to allow substantial increases in farm size.