Serious problems that have occurred in rural areas in the past several years are mainly attributed to grassroots governments. However, it is unfair to attribute all problems to them because the root cause lies in the government system. Yet, policies issued by the central government should be carried out by reliance on grassroots governments. Therefore, in terms of rural issues, efforts should be made to conduct research into grassroots governments. Rural issues encompass three levels, namely economic, social, and political. Researchers have provided three perspectives to explain government-related issues: 1. power and system; 2. information asymmetry; and 3. politics, or undergrowth of political democracy. Nevertheless, there are defects with such analysis. Under China's current circumstances, it is imperative to improve government performance by appropriate decentralization, enhancing information circulation and transparency, and increasing the extent of democratic participation. However, this study contends that in the actual functioning of grassroots governments, a low degree of institutionalization is the fundamental reason. On the one hand, the performance of grassroots governments in many cases and the interaction between grassroots governments and the people are not institutionalized and many problems arise out of that and the public order at grassroots level is difficult to set up. On the other hand, many institutional norms with respect to grassroots governments have been neglected and not followed. In fact, many institutions are not implemented in the day-to-day work of grassroots governments. So it is nothing new to view government-related issues from the perspective of institutions. The author puts forward the notion of "institutionalization of government" for analysis of issues regarding grassroots governments. This is because, first, institutionalization is a key feature of modern government and, second, in comparison with the requirement of the idea that "political system absorbs political participation and democratization", institutionalization of government focuses on the institutional construction of government per se. As for institutionalization of government, institutions are not pure rules or behavioral patterns, but a combination of the two. Put another way, institutionalization of government does not mean the establishment of a series of systems but a manifestation in two aspects. First, during the interaction between government and society, a higher degree of institutionalization is indicated by government's positive response toward society's demands. Second, during the interaction within government system, a higher degree of institutionalization is indicated by the fact that governments at different levels and different departments can maintain consistency between goals and actions. As the problem of a lower degree of institutionalization of grassroots governments is quite complex, this study believes that it is necessary to discuss the issue from three aspects, i.e. lack of institution, misplacement of institution, and alienation of institution. How to solve such a problem? The study points to two answers: establishing a modern bureaucratic system, and developing grassroots democracy.