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Capital outflow during industrialization and urbanization is a primary reason for global rural recession, and China is no exception. Since China focuses on the integrated development of urban and rural areas, urban-rural capital flow affects the transformation and sustainable development of rural areas. However, few studies have focused on this issue. Based on long-term field observations of Wufang Village in Shanghai, we established an analytical framework to describe how urban-rural capital flow promotes rural reconstruction. The research results show that the influx of urban industrial and commercial capital results in market-oriented organization and reconstruction focusing on land, industry, and capital: (1) Land-use optimization changes the land ownership and spatial structure of rural areas and improves the spatial value of rural areas. (2) Industrial development is focused on diverse development and the integration of primary, secondary, and tertiary industries in rural areas. (3) Capital investment is performed by a consortium of state-owned enterprises, private enterprises, and rural collective enterprises—which jointly invest, obtain revenue, and share profits—while considering the balance between attracting capital to rural areas and achieving independent development. The experience of Wufang Village has implications for the rural transformation policies of other large cities in China and other countries in Asia and Africa during urbanization.
