In recent years, whether China’s rising investment rate is reasonable has been controversial, however, the degree of the return on capital is an important criterion to evaluate whether the investment rate is reasonable. Based on the macro-prediction model by deducting indirect tax which is undertaken by consumers to improve return on capital, this paper calculates the industrial return on capital of 31 provinces and municipalities during 1978-2018 in order to study the evolution trend and regional difference of China’s industrial return on capital. Analysis results show that since the reform and opening up, China’s industrial return on capital has roughly experienced three stages: during 1978-1998, China’s industrial return on capital maintained a downward trend; during 1999-2011, an upward trend; and during 2012-2018, a slow downward trend. At the same time, China’s industrial return on capital shows the inter-provincial and inter-regional differences, China’s industrial return on capital decreases from east to west, with the highest in the eastern region, followed by the northeast region, and the lowest in the western region, and the industrial return on capital in the central region has gradually overtaken that in the northeast region since 2011; The inter-regional difference of industrial return on capital tends to converge, which is reflected in the decline of the standard deviation of industrial return on capital in the four regions and the reduction of the Theil index. The convergence of the inter-regional difference of the industrial return on capital is the reflection of the weakening regional mismatch degree. Therefore, it is necessary to deepen the reform of factor market and raise capital allocation efficiency to further improve the industrial return on capital and narrow the inter-regional difference.