Transforming a traditional agricultural economy into a modern economy is one of the main themes in economic development.Through theoretical and empirical analysis,this paper finds out that the key to transformation is to raise the economic value of people,to improve human capital investment and to match the stocks of physical and human capital.China's rural economy is on the edge of economic take-off,and different zones may pursue different paths for transformation.The source of rural poverty is not the scarcity of income or consumption,but the deficiency of education,social security,medical care and economic opportunity,which we define as "capability poverty".