Transforming 500,000 dilapidated housing units and over 110,000 old residential communities in five years: Where will the funding for urban renewal come from?
Recently, the first national-level special plan for urban renewal was released.
The "15th Five-Year Plan for Urban Renewal" (hereinafter referred to as the "Plan") lists 10 major indicators for urban renewal during the 15th Five-Year Plan period, and clarifies the establishment of a policy system for urban renewal by improving the implementation mechanism of urban renewal and constructing a sustainable investment and financing system for urban construction and operation.
The demand for funds in urban renewal is large. Where does the money come from?
Behind this question is the transformation of China's urbanization process. From the convening of the Central Urban Work Conference in 2015 to the inclusion of urban renewal as a special strategic task in the 15th Five-Year Plan Outline, in the past decade, China's urbanization has been undergoing a transformation from "incremental development" to "stock operation".
In other words, when cities no longer rely on the one-time income from land expropriation and sales, but turn to obtaining continuous income through the operation of existing spaces, the dynamic mechanism of urban development has been fundamentally reshaped.
Therefore, asking "where does the money come from" actually means asking: when cities enter a new stage of development, how to build a mechanism with endogenous growth momentum to transform urban renewal into continuously appreciating assets rather than a debt burden.
At the State Council's regular policy briefing on June 8, it was mentioned that in 2025, the special project of the central budgetary investment for urban renewal will focus on supporting the construction of urban renewal projects such as the renovation of old urban residential areas and the transformation of urban dilapidated houses. In 2026, the allocated funds will reach 97 billion yuan, aiming to improve residents' living conditions, improve public service facilities, and benefit about 8 million households.
Qin Haixiang, the deputy minister of the Ministry of Housing and Urban-Rural Development, said at the briefing that local governments should make good use of central fiscal funds, local government special bonds, and credit funds, give full play to the role of the market mechanism, actively attract social capital to participate, and encourage private enterprises to participate in the construction and operation of urban infrastructure, so as to build a sustainable investment and financing system for urban construction and operation.
From government support to multi-party sharing
The major indicators specified in the "Plan" include that by 2030, 500,000 sets/rooms of urban dilapidated houses will be renovated, 115,000 old urban residential areas will start to be renovated, 1,500 old blocks and factory areas will be renovated and upgraded, and 4,000 urban villages will be renovated.
According to the calculations of multiple institutions, the total capacity of the urban renewal market during the 15th Five-Year Plan period is expected to reach 15 trillion to 20 trillion yuan.
Urban renewal brings a super-large-scale investment volume, and two practical problems follow: where does the money come from? How should all parties share the costs?
This "Plan" clearly proposes to build a sustainable investment and financing system for urban construction and operation, and provides directions from three dimensions: improving fiscal support policies, optimizing financial support measures, and guiding the participation of social capital. This means that the funding puzzle has expanded from being mainly government-led in the past to a multi-party pattern of "reasonable sharing of funds by the government, the market, and residents".
Currently, government funds have been increasing in multiple ways. At the aforementioned briefing, it was mentioned that since 2024, the Ministry of Finance and the Ministry of Housing and Urban-Rural Development have launched work to support some key cities in implementing urban renewal actions. For three consecutive years, a total of 50 key cities including Beijing, Shanghai, Shenyang, Luoyang, Urumqi, and Chengdu have been supported to take the lead in trials.
The central government's reward-for-subsidy mechanism has been implemented. Cities on the shortlist can receive fixed subsidies: no more than 800 million yuan for each city in the eastern region, no more than 1 billion yuan in the central region, and no more than 1.2 billion yuan in the western region, to support key model projects and mechanism construction.
At the aforementioned briefing, the Ministry of Finance revealed that it will coordinate various funding channels, such as allocating subsidies for urban affordable housing projects to support the renovation of urban villages, old urban residential areas, and dilapidated houses; supporting eligible urban renewal projects through local government special bonds.
In addition to fiscal support, tax support policies will also be implemented. Eligible urban renewal entities can enjoy the current relevant tax incentives.
Data from the China Index Academy shows that in the first quarter of this year, the issuance scale of special bonds related to urban renewal across the country was close to 120 billion yuan, reaching one-third of the whole year of 2025, a year-on-year increase of 7%; among them, the issuance of special bonds for urban village renovation exceeded 50 billion yuan, a year-on-year increase of 140%, accounting for more than 40%.
In addition to fiscal funds, local governments are also actively expanding financing channels.
Since November 2025, the housing and urban-rural development departments of provinces such as Liaoning, Hubei, Inner Mongolia, Anhui, and Fujian have successively cooperated with local branches of the China Development Bank and the Agricultural Development Bank of China. By providing special loan quotas, preferential interest rates, and optimizing the review process, they have directed policy-based funds towards urban renewal projects. Zhejiang, Anhui, Jiangsu and other places are also striving for new policy-based financial instruments from the central bank to enrich project capital or construction funds.
Facing the investment scale of over 15 trillion yuan during the 15th Five-Year Plan period, relying solely on the single source of government funds is not only difficult to support, but may also pile up new hidden debts. To attract social capital to follow, a mechanism that allows all parties to make a profit - that is, a reallocation of interests and risks - is needed.
In urban renewal projects, the four types of funding entities, namely the government, financial institutions, social capital, and residents, have structural differences in their demands for risks, returns, and terms.
Yan Yuejin, the deputy dean of the Shanghai E-House Real Estate Research Institute, pointed out that the government's investment is mainly based on people's livelihood considerations and regional development plans, and its core concern is the sustainability of financing, that is, whether the project will have the ability to repay debts in the future; the primary demand of financial institutions is to control bad debt risks, so they have high requirements for the stability of project cash flows.
Social capital has the clearest return target, pursuing quantifiable economic benefits. At present, it is mainly invested in commercial housing development or the long-term operation of existing assets; residents' willingness to invest is highly related to the project type, and improving living quality is their primary consideration, followed by the expectation of asset appreciation.
How to achieve small profits and sustainability
Urban renewal projects often require a large amount of funds and have a long operation cycle. To solve the funding problem, "small profits and sustainability" is the key.
Taking the renovation of old factory areas as an observation model, in the "Plan", the renovation of old factory areas ranks third among the major indicators. The number of renovations and upgrades in 2025 is 900, with the goal of reaching 1,500 by 2030.
"Old factory areas have many historical legacy issues. With the upgrading of industries, property owners often bear heavy debts. In addition, it is also difficult to choose suitable industries during the urban renewal process of old factory areas," explained Zhang Ke, a member of the Urban Renewal Committee Studio of the Beijing Municipal Political Consultative Conference and the president of the Haidian District Construction Industry Association.
In the 1950s and 1960s, against the background of vigorously promoting industrialization across the country, Beijing arranged a number of key industrial projects. In Nankou Town, Changping District, key enterprises such as Beijing Lu-pai Thermos Flask Industrial Company, Beijing Flat Glass Group Company, and Beijing Automobile Steel Rim General Factory were successively established, making it an important industrial town in the north of Beijing.
After 2005, due to factors such as overcapacity in traditional manufacturing and the improvement of ecological and environmental protection standards, multiple projects were shut down one after another. A 43-hectare factory area was left idle for a long time, becoming a typical inefficient stock industrial space.
Along with the factory area, the decentralized property rights, the cumbersome debts left over from history, and the gradually aging equipment were also put on hold. Many social capitals are deterred from such urban renewal projects. Zhang Ke said that the original investment amount for urban renewal projects of factory buildings is relatively large, and the return period is more than 10 - 15 years, which causes hesitation among capital.
In addition, the renovation projects of old factory areas lack sustainable business forms to support the income. Yan Yuejin said that the renovation of old factory areas must be linked to industries. Only when there is a demand for industrial upgrading do policies such as land renewal have value. But the pain point is how to make the renovated space have continuous and vibrant industrial content to support it. In practice, many old factory areas have been transformed into creative parks, but they are prone to become cold in the later stage and have poor market performance.
The strategy adopted by Changping District, Beijing is to use the district-owned state-owned asset operation platform as the operating carrier. A special project subsidiary is established with its own operating cash flow and the returned funds from the state-owned capital operation budget. It is responsible for purchasing the non-performing debts of the old factory area, absorbing and aggregating the fragmented industrial land property rights of four plots, and turning the debts into equity in the form of debt-to-equity swap, turning the "dirty assets" into a clean asset package without disputes and debts.
Next is to attract project shareholders for the subsidiary to realize the operation of the factory area. In 2022, Changping District signed an agreement with Tsinghua University to transform the 43-hectare industrial factory area into scientific research land. In the new cooperation model, the state-owned enterprise holds the controlling stake. Tsinghua University contributes its scientific research resources and the rights and interests of laboratory establishment as shares, without bearing the costs of early debt resolution and property acquisition, and only investing in the construction of scientific research buildings later. The state-owned holding subsidiary relies on scientific and technological innovation resources to increase the asset valuation of the park and enjoys long-term industrial operation income dividends.
Zhang Ke regards this as an "upgraded version" of traditional factory building renovation. He explained that in the past, urban development generally "emphasized investment, neglected operation, and neglected management". Now the logic has changed - it has shifted to basing on the city's own resource endowment and promoting high-quality renewal according to local conditions.
The smooth progress of the new model is related to the policy support of the local government. According to the relevant plans and urban renewal regulations of Beijing, the renovation of old factory areas can simplify the process of land use change, the district-level government has greater approval power, and the land supply method is more flexible, which clears the institutional obstacles for urban renewal projects.
Renovation is only the first step. The core is how to make the funds circulate and generate small profits. The Changping District government first set up a science and technology innovation guidance fund, and then used it to leverage private equity funds and industrial capital to increase their shareholdings. These market-oriented funds are responsible for the operation of the park's commercial facilities, talent apartments, and industrial incubation centers, and recover the investment through rent and tax rebates.
At the same time, Changping District uses the Tsinghua Nankou National Key Base as an anchor to attract the agglomeration of upstream and downstream enterprises, and connects the chain from basic research to industrial transformation. As a result, Nankou Town has transformed from an "old factory area" to a "scientists' town".
Zhang Ke analyzed that in this renovation project, the government's role is not only to invest in the renovation of factory buildings and infrastructure, but also to provide early investment for the transformation of scientific research results from 0 to 1 by setting up a science and technology innovation guidance fund, and to give equity incentives to scientists and research teams. When the scientific research project investment is successful, the return is not only reflected in a single project, but also drives the industrial upgrading of the entire region.
"The renovation of old factory buildings can learn from the ideas of Nankou Town in Changping," Zhang Ke summarized, that is, based on the existing high-quality industries and resource endowments in the local area, transform the idle land into a carrier space for industrial development, and promote urban renewal according to local conditions.
Urban renewal not only needs to "put the idle land to use", but also make it "come alive" to form a high-quality and sustainable development model.
Yan Yuejin reminded that to avoid urban renewal ultimately becoming a pile of debts, in the future, more detailed classification of projects is needed to accurately grasp the characteristics of different products. Urban renewal does not mean completely rejecting borrowing. The key lies in whether a new scenario for subsequent operation can be found after borrowing money. The design of this new scenario and new operation mode is the fundamental to prevent debt risks.
This article is from the WeChat official account "Time Weekly" (ID: timeweekly). Author: Wang Ke, Pan Zhanhong. Republished by 36Kr with permission.