Abstract: Agglomeration economy effect is considered as a key factor deciding the spatial distribution of economic activity. Many researches have examined the existence of agglomeration economy effect. The most common method to examine the existence of agglomeration economy effect is to investigate the relationship between industry or city size and productivity. Economy agglomeration is very distinct in China, and the trend has enhanced ever sine 1978. An obvious evidence is that the total GDP of Changjiang(Yangtze) River Delta Metropolitan Area, Zhujiang (Pearl) River Delta Metropolitan Area and Beijing-Tianjin-Hebei Metropolitan Area accounted for 34.74% of the whole China, but the ratio grew to 40% in 2004. We have to investigate the economic mechanism of the economic factors. This paper examines the existence of agglomeration economy effect in China’s manufacturing industries by investigating the relationship between industry size and productivity. We use the provincial panel data of 8 industries from 1987 to 2003, and the result approves localization economy effect and urbanization economy effect in most of the 8 industries. The detailed result is that the localization economy effect exists in the industries of foods manufacturing, textile manufacturing, processing of petroleum and coking, medicines manufacturing, transport equipment manufacturing, and the urbanization economy effect exists in the industry of textile manufacturing, paper and paper products manufacturing, raw chemical materials and chemical products manufacturing, processing of petroleum and coking, medicines manufacturing. In order to check the robustness of our model, we use the total output, instead of value-added of industry, to denote industry size. The result is almost the same with the original model, which approves the robustness of the model. It need to be pointed out that we do not find the relationship between industry technology level and agglomeration economy effect. We find urbanization in low technology industry as well as in high technology industry. The industrial market organization is also an important factor that influences the industry productivity.We consider the impact of industry organization in our model by introducing the variable of average firm size, and the result shows that the average firm size has positive influence on productivity". A feasible explanation is that internal scale economy inside firms has stronger influences on the industry productivity than the innovation effect does, which derived from competition. we just use the provincial level and two-digit industry data, so the next step is to use more detailed data to investigate the existence of agglomeration economy effect in future.