<p>This article investigates the rise of the modern Chinese short story in the early 20th century as a pivotal case of theoretical localization within China’s literary modernization. Against the backdrop of national crises and cultural reforms, early modern Chinese intellectuals selectively engaged with and reinterpreted Western theories on the short story, particularly those of Edgar Allan Poe, not by transplanting them, but by reshaping them into instruments of social critique and aesthetic renewal suited to Chinese contexts. Figures such as Qichao Liang initiated utilitarian approaches, while Hu Shi, Shoujuan Zhou, Dafu Yu, and particularly Lu Xun propelled this localization through critical interpretation, translation, and creative practice. Lu Xun’s works exemplify this synthesis, seamlessly integrating Western narrative techniques with critiques of traditional Chinese culture and elements of classical Chinese aesthetics. The process of localization was marked by a dynamic tension between the “art for life’s sake” school, which emphasized the short story’s social engagement, and the “art for art’s sake” proponents, who prioritized its aesthetic autonomy. Rather than being a mere opposition, this debate ultimately enriched and complicated the identity of the modern Chinese short story. Through a process of negotiation between Western influences and the indigenous traditions, the modern Chinese short story underwent a localized reconstruction, playing a crucial role in shaping modern Chinese literary and cultural subjectivity. This process offers a compelling model of cross-cultural theoretical adaptation and Sino-Western interaction.</p>