In the 1950s, to establish new production relations and to promote the productivity, China made collectivized changes in handicraft industry. In the process of collectivization, fundamental technology, fund and raw materials were provided to support the handicraft industry. What changed most was the production relation in handicraft industry. With the development of socialist and the improvement of the productivity, China determined to improve the production of collectivized community (or group) through sharing experience, promoting procedure, optimizing management and implementing semi-mechanization and mechanization. By the mode of socialized large-scale production, China attempted to improve the productivity of the handicraft industry and to strengthen socialist economy. In Zhejiang, some collectivized community could accelerate the development of mechanization and semi-mechanization through power equipment, but the equipment only provided limited support. Therefore, several years after the completion of transformation, the mechanization and semi-mechanization even stayed backward. On the other hand, community members with little education were not good at technology and machinery operation, which restricted the mechanized and semi-mechanized production. This paper analyzes the production efficiency before and after the collectivization, and finds that without the implementation of labor advantages, the adding of the labor number couldn’t produce good effect in terms of marginal benefit. Compared with those family workshops (or family handicraft workshops) which were of small investment, flexible running and simple management, the profit of the collectivized community was gradually declining due to the cost of management and salary. What’s more, the personal value of those handicrafts men who acquired good techniques and possessed high efficiency could not be motivated in this system of salary, and this greatly decreased their enthusiasm over production. To stimulate the profit rate, more investment had to be made (including technology) and the industry scale had to be expanded, which again dragged the national resources into the ″fund swamp″. With the background of national industrialization, the limited fund and raw materials would definitely go to the industry construction. The government had no more fund to give support to handicraft industry. All those problems arising at the end of collectivization exposed that only when the production relations fundamentally adapt to the productivity could the productivity be effectively promoted. However, with poor technology and short fund, the complicated socialist reformation of the handicraft industry was carried out smoothly, which pushed the handicraft industry to the development of semi-mechanization and mechanization. This was really a profound reform of historic significance.