Abstract: The subject of this study is about the relationship between institutional rules and social capital construction. Unlike the existing research, which mainly regards social capital as an independent variable and explores its role in social development, this paper treats social capital as a dependent variable and tracks the development of public goods type of social capital, especially in the adverse environment of group conflict.The paper finds that universal social capital does not necessarily occur naturally in normal social relations, it needs to rely onspecific public social rules to develop and consolidate. The XW case shows that the expansion of social capital,represented by the breadth of villager cooperation moving from within-clans to cross-clans, is clearly the result of somenew innovative public decision-making rules.Facingan opportunity for collective asset appreciation and crisis management, people in XW responded with creating a set of new rules. A village council was set up with eighty-five representatives and an open WeChat platform was created for proposals and discussions, allowing representatives to deliberate and vote, sign resolutions,publish legal auditions, broadcast videos, and share other online information. The reconfiguration of the collective asset decision-making power structure has established a different public relationship among the villagers and stimulated the growth of general social capital. The study describes the mechanism of generating social capital，offering a theoretical explanation on the limitation of special social capital, the expansion of social capital, and the improvement of cooperative behavior. At the same time, it is suggested that disrupting the conventional system rules with innovative reforms could help break the cycle of group conflict and control competition, and improve the quality of grass-roots social governance.

Key words: social capital, cooperation action, rule reform, grassroots governance