Abstract: China's township enterprise is the economic organization form that general farmers chose to participate in the benefit division of the industrialization process in the reform and open policy initial period.With the deepening development of the market economic system reform,the development of the township enterprise is insufficient and it has to be transformed.Aimed at such problems,this article is to explain the changing process of the township enterprise from the thriving to the transformation by using mainly the interest group theories and the action theory of Olson.Finally,this paper concludes that township enterprises have completed the institutional change process of the transformation with the common effort of the community government,operators of the rural community farmers and town enterprise workers.