This paper focuses on analyzing some core elements (economic system reform, diversification of peasants, and movement of labour forces) which resulted in the birth and development of the township and village enterprises(TVEs) in China after the start of reform and openness. In the course of tracing the elements, this paper contend the perspective such as:TVEs is a outcome of bottom-up institutional innovation under the politico-social constraints. In spite of deepening of marketization in rural areas, and improving the agricultural efficiency and autonomy of peasants, the movement of labor force was controlled by the social urban-rural divide system. The 'hukou(戶口)' system, initiated from the centrally planned economic system, has been sustained even at the reform era. Therefore, despite the improvement of efficiency of agricultural production, a large amount of surplus labor in rural areas could not be easily eliminated. Under these practical limitations, rural residents created a collectively owned non-agricultural production entities called TVEs. So, the TVEs shows some pecular features:located in rural areas, collectively-owned ownership system, and the local government is strongly involved in the management and governance. Finally, we consider the birth and growth of TVEs as a product of bottom-up institutional innovation under the practical constraints.