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Background: The study aimed to examine the effects of village income and household income on child nutrition status through basic sanitation and hygiene behaviours. Methods: A survey was conducted in a rural cross-border area of Yunnan, China. Data on village income in 2002-2006 and household income in 2002-2007 were obtained from an official report and a household survey respectively. Anthropometric measurement of the children aged 6 months to 5 years (n = 1801) was used to determine their nutrition status. Child caretakers were interviewed about household sanitation facilities and their hygiene behaviours using a structured questionnaire. Results: Households with incomes below the national poverty line decreased from 22% in 2002 to less than 8% in 2007. The coverage of safe drinking water and water-sealed latrines gradually increased, but was still inadequate. The prevalence of stunting and underweight in children was 37% and 17.5% respectively. Village income had a greater positive effect than household income on exclusive breastfeeding, drinking boiled water, handwashing with soap, as well as reducing the prevalence of stunting. Village income at one lag year had the greatest effect on the availability of basic sanitation compared with other lag years, while household income had a small but significant effect through all lag years. Conclusions: Rapid economic growth is not always followed by improved child nutrition status. Village income has a greater effect than household income on sanitation facilities, hygiene behaviours of caretakers and child nutrition status. [ABSTRACT FROM AUTHOR]