Abstract: Given the fundamental reality of a “large country with numerous smallholder farmers”, achieving the moderate-scale farm management has become an urgent task for overcoming the constraints of smallholder agriculture, strengthening the foundation of national food security, and advancing agricultural modernization. Taking farmers’ exit as the central analytical perspective, and drawing on data from the National Agricultural Census, Rural Fixed Observation Survey, and natural resource monitoring, this study systematically examined the practical dilemmas confronting smallholder farming in China, the structural constraints on scale management, and the pathways for institutional optimization. The results indicated that smallholder farming in China was generally characterized by a coexistence of “three highs and three lows”, namely high costs, high risks, and high constraints, alongside low information symmetry, low organizational cooperation, and low operational returns, which resulted in persistently low agricultural operational efficiency and comparative returns. Furthermore, land fragmentation, farmland conversion to non-agricultural uses, incomplete rural labor transfer, and the continuous increase in the number of rural households collectively constituted deep institutional constraints on the formation of moderate-scale farms, among which the sustained growth in the number of farm households and their “semi-exit” status were key sources of the difficulty in achieving land scale operation. Based on these findings, the paper proposes that promoting the orderly exit of farm households should be taken as an important institutional prerequisite for promoting agricultural scale operation. Accordingly, it proposes a phased reform strategy: improving farmland transfer mechanisms and agricultural socialized services during the first Five-Year Plan period; advancing coordinated reforms in the household registration, social security, and rural land systems during the second Five-Year Plan period; and, in the long run, optimizing farmland inheritance arrangements, fostering a differentiated system of family farms, and establishing a modern agricultural management system founded upon the orderly exit of farm households. These findings provide policy insights for advancing agricultural modernization and safeguarding national food security.