Counter-urbanization in China is a unique phenomenon shaped by state-led policies, including the Rural Revitalization Strategy and the Yangtze River Delta Regional Plan. These initiatives aim to address urban-rural disparities through industrial decentralization, infrastructure improvement, and regional development. Unlike Western market-driven models, counter-urbanization in China has led to the emergence of hybrid spaces that integrate urban and rural functions, reshaping traditional spatial boundaries. Economic drivers, such as rising living costs in megacities and policy incentives, intersect with cultural shifts, including environmental awareness and rural nostalgia, to influence migration patterns. However, challenges such as environmental degradation, social inequalities, and uneven development persist. By integrating spatial, socio-economic, and policy perspectives, this study highlights the transformative potential of counter-urbanization in promoting sustainable development. It underscores significant implications for policy frameworks that advance participatory governance and equitable urban-rural integration aligned with regional contexts.