This paper investigates the effects of sectoral diversification on the Chinese banks’ return and risk using panel data on 16 Chinese listed commercial banks during the 2007-2011 period. We construct another new diversification measure, taking systematic risk of different sectors into consideration by weighting them with their betas and compare the results with those of more conventional measure HHI. We find that sectoral diversification is associated with reduced return and also decreased risk at the same time, which however, contradicts existing findings in developed countries and also in emerging economies.