The main purpose of this paper is 1) to explore the institutional arrangements, forces and local contexts that support the development as well as change of the collective ownership-based land property rights system in Dong-guan, Guang-dong province, and 2) to propose an “institutional space” approach to understanding the highly diverse local socio-economic systems in different regions of China. We identify the mechanisms that sustain and mitigate, at various spatial scales in the Dong-guan area, the functioning of the land property rights regime of collective ownership. We hence believe that the benefits generated for the peasants by a collectively owned system are far better than that by a state-owned system. Yet, in order to seize the enormous potential rent gap from change of land use, the tentacles of the state organ are, in different ways, tirelessly reaching into villages in rapidly industrializing areas. Finally, we suggest a “township wronging the villages” hypothesis for interpreting the dynamics of state/society relationship in areas where villages are being rapidly developed.