China’s urbanization is marked by rapid changes in socio-economic structure of peri-urban villages. A key governance challenge derived from these changes is how to establish equilibrium among market-oriented reforms, reconfiguration of economic structure of the village, and villagers’ livelihood so that urbanizing villages may enjoy social stability, economic development, and prosperity at the same time. The local state plays an important role in addressing this challenge because it is responsible for implementing policies and managing relationships among the government, local communities, and villagers. Both of these responsibilities have practical ramifications for governance modernization. This case is derived from District A of Guangzhou City in Guangdong Province, the district that has experienced the whole process of being developed from traditional villages to peri-urban villages and then to urban core. The case sheds light on how grassroots governance can be restructured in urbanizing China.

There are four milestones in the process of restructuring grassroots governance in District A. In the 1980s, the district government responded villagers’ requests with various types of financial compensation and non-agricultural hukou. These responses, in turn, led villagers and village collectives to accept the government’s requisition of their land. In the early 1990s, the district government introduced the “reserved commercial land” policy in response to decreased value of non-agricultural hukou and increased value of land. This policy enabled villagers and village collectives to have a share of the income generated from reserved commercial land. In so doing, social stability was achieved in District A’s urbanizing villages. In 1996, the district government promoted shareholding reforms to address the increasingly important governance issue of collective assets management. Since 2009, the district government has intervened in urbanizing villages’ livelihood affairs and public affairs (e.g., public security and environmental management). These interventions have brought urbanizing villages of District A into the system of modern governance.

This case demonstrates that the process of restructuring China’s grassroots governance is marked by an important feature, that is, local state’s gradual entry into the governance of urbanizing villages. This entry proceeds with local state’s responses to grassroots requests over time. It has also incrementally modernized the governance of urbanizing villages, particularly by replacing traditional village norms with modern governance practices.