Abstract: Smart shrinkage is the optimal allocation of people, land, and resources, and it is also an effective way for rural high-quality development. Guided by the theory of smart shrinkage, this paper takes 18 administrative villages (223 natural villages) in Panxi Town, a remote mountain village, as examples to analyze the basic characteristics of rural population, industry, function, and space shrinkage under the background of urbanization, and discusses the mechanism of rural shrinkage. It is believed that the two vicious cycles of 'population outflow-industry shrinkage' and 'population outflow-insufficient service facilities' are the causes of accelerating rural shrinkage. The two are mapped to the village space respectively, causing the imbalance of rural people, land, and resources. Therefore, the rural smart shrinkage path of coordinated development of population, industry, space, and function is proposed, including population-industry coordination, where industrial transformation and upgrading is the forerunner and promoting the reshaping of population structure, population-space synergy, where the shrewd contraction path is put forward from the aspects of aggregation core, spatial pattern, and spatial comprehensive improvement, and population-function synergy, where the differentiation and upward shift of service functions and the construction of life circle is explored.