Abstract: As the level of urbanization rises, China's urbanization process has moved from a large-scale 'rural-to-urban migration' phase to a new development stage characterized by urban-rural symbiosis and townvillage integration. As the primary spatial carriers for the bidirectional flow of urban and rural factors, small towns are undergoing a transformation in their development models and governance logics. Drawing on the theoretical framework of 'from rural China to urban-rural China', this paper analyzes the evolutionary logic, practical dilemmas, and policy needs of small towns transitioning from traditional 'rural service hubs' to modern 'urban-rural integration nodes'. The findings reveal that under the current demographic landscape, small town development faces multiple challenges, including rising complexity in social governance, lagging economic diversification, mismatches between public service supply and demand, and fragmented governance resources. This paper proposes two directions for the development and transformation of small towns, and puts forward policy recommendations in areas such as top-level design, spatial planning, industrial development, governance innovation, and cultural preservation.