The focus of this study is the property rights theories tested in the context of Modern China’s rural areas. It is divided into three parts: Part I presents the theoretical framework, concepts. These form the analytical tools. Part II briefly describes the three big transformation of rural arable land ownership in modern China. This is a particular case in which the theoretical framework can be tested. In Part III of this study I apply the analytical framework developed in part I to understand the puzzles and problems described in part II. This is the application of theory to the history and reality. In this research, I show that the change of property rights is central to political, economic and social change in that particular society. As a formal institution, property rights provide an incentive or disincentive structure for a particular economy. The contrasting economic performance in modern China’s agriculture can be well explained by the underlying force— the property rights institutional arrangement. The stagnation and decline of Chinese economy and universal poverty is conditioned by the disincentive structure of the Commune System. While the specular economic growth and its relief of poverty is driven by the incentive structure of the Household Responsibility System (HRS). The success of the HRS is in that it is not only a government institutional arrangement but also a communal institutional arrangement in its origin. The rules created by the peasants themselves are legitimized by the central government as property rights. It really matter who creates the property rights and for whom. This research attempts to enrich our knowledge in social science. It challenges the conventional and standard political and economic theory used to explain Chinese puzzles in its economic growth and social development. In the theoretical sphere, it contributes mainly to the literature of Marx’s theory of property, Honoré’s concept of ownership and Ostrom’s theory of common-pool resources and institutional change. In the practical sphere, it contributes to our understanding of the radical and complex change in Modern China’s rural areas.