As the problem of urban-rural inequality in China becomes increasingly severe, urban-rural integration has become a hot topic among both researchers and policymakers. However, to achieve urban-rural integration faces the challenges from dualism in institutional arrangements, diversity in territorial contexts, and uncertainty in development environments. In response to these challenges, this research employs the idea of 'economic linkages of small towns' to develop a rural-centred, place-based, and process-oriented approach towards urban-rural integration. This research examines the functions, patterns, and dynamics of economic linkages of small towns under the wider economic-spatial restructuring process brought by rapid economic growth and urbanisation in China. More specifically, this research explores the implications of small towns' economic linkages for integrated development of urban and rural areas.Based on the idea of 'problem-solving', this research develops the conceptual framework of 'Learning-based Territorial Economic System (TES)' which includes 'knowledge system', 'organisational system', and 'territorial system'. This conceptual framework conceptualises 'economic linkages' as interactions between economic actors who participated in various 'interactive situations' in solving local development problems. This research carried out two case studies of successful small town and rural development in Kunshan, Jiangsu and Shunde, Guangdong. The empirical findings demonstrate that economic linkages are crucial in identifying local development problems, getting access to key economic resources, and coordinating economic activities in uncertain circumstances. Based on the empirical findings, this research develops two development models of Learning-based TES - the Kunshan Model and the Shunde Model - as coherent systems of economic linkages in problem-solving processes. Explicitly, the Kunshan Model features interactive situations of competitive positioning, elite coalition-building, and synchronised operation and the Shunde Model features interactive situations of reflective monitoring, skill matching, and communicative mediation. In application of these two development models, this research formulates a '3-step formula' as key policy implication, including assessment, experiment, and institutionalisation. Such '3-step formula' can contribute to build up local problem-solving capacities that lead to more substantial urban-rural integration.