This paper tests the effect of processing trade on Chinese employment using the industrial panel datafrom 2001 to 2008 based on dynamic panel GMM. The result shows the effect of processing trade on employmenthas the characteristics of lag. The effect of current processing imports and exports are not obvious. The regressionresults of the sub-sectors show that there are differences between sub-sectors in the effect of processing trade on employment. The effects of processing trade on employment in labor-intensive sector and resource-intensive sectorare relatively significant. The impact of technology-intensive sector is very weak.