Abstract: In 2026, China’s 15th Five-Year Plan for Urban Regeneration was officially promulgated, which, combined with the new land policy linking increments to existing stocks, marks a comprehensive shift in the country's urban development from incremental expansion to the revitalization of existing assets. The supporting funding framework has taken initial shape, with total investment during the 15th Five-Year Plan period projected to reach RMB 15 trillion. However, the easing of funding issues is only the first step. The more challenging issue lies in who will undertake and sustainably operate these assets to generate economic benefits. Project-based development logic that relies too heavily on the expansion of construction scale is no longer sustainable. Coupled with the misalignment between the short-term evaluation of state-owned enterprises and the demands of long-cycle operations, as well as fragmented property rights hindering asset consolidation, urban renewal easily falls back into the old routine of emphasizing construction over operation. Researchers at ANBOUND believe that China needs to systematically cultivate urban operators as a new type of market entity, promoting the role restructuring of governments, state-owned enterprises, private enterprises, and communities. The country will also need to reform the state-owned enterprise evaluation system, establish a "patient institution" adapted to long-cycle projects, innovate property rights integration rules, and build a long-term government-enterprise cooperation framework. This provides practical reference for China's urban renewal to overcome the difficulties of property rights collection and integration, introduce long-term capital, and construct a market-oriented operational ecosystem, ultimately driving a fundamental transformation of urban renewal from engineering construction to the continuous enhancement of urban value.
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After decades of large-scale urbanization, China's urban development pattern has undergone a fundamental transformation. With shrinking incremental land space, declining real estate investment, inefficient and idle existing assets, and prominent living standard deficiencies in older urban areas, the traditional urban development model driven by local governments relying on land acquisition, housing construction, and land sales is no longer sustainable. Against this backdrop, on May 15, 2026, the State Council issued the first 15th Five-Year Plan for Urban Regeneration. Coupled with a package of policies such as the linkage between increments and existing stocks, special-purpose bonds, special treasury bonds, and tax reductions, this has elevated urban regeneration to a national institutional strategy. The top-level design at the policy and funding levels is largely complete, and trillions of yuan in funds are accelerating into the urban renewal track. However, the deep-seated contradictions in the industry's development still exist. Most projects continue to follow the traditional logic of merely “constructing and delivering”, and they suffer from issues such as a lack of long-term operating entities, difficulties in property rights consolidation, a mismatch between short-term evaluations and long-cycle operations, and an insufficient supply of long-term capital, which have become bottlenecks restricting the sustainable development of urban regeneration. As it stands, urban regeneration cannot simply continue the development paths of the past. It must complete a mindset transformation from emphasizing development to emphasizing operation, and provide systematic solutions centered on the cultivation of urban operators, institutional innovation, and mechanism improvement.
I. Policy Logic and Current Structural Dilemmas of Urban Regeneration in the 15th Five-Year Plan
In 2026, China’s State Council officially promulgated the 15th Five-Year Plan for Urban Regeneration. The release of this national-level five-year specialized plan marks the official entry of urban renewal into a new stage of institutionalized advancement, transitioning from local sporadic pilot programs and spontaneous market exploration. The plan sets firm targets, namely completing the renovation of 500,000 sets of dilapidated and dangerous housing, which doubles the figure of the 14th Five-Year Plan, renovating 4,000 urban villages, and deepening the transformation of old residential communities, old blocks, and old factory areas. These figures convey a clear assessment that quality defects in existing space have shifted from localized livelihood pain points to systemic risks concerning urban safety, social stability, and domestic demand potential. The safety and dignity of millions of residents urgently need to be improved, while a large stock of inefficient, high-risk completed assets requires revitalization or replacement through institutionalized renewal.
Related to this, in March of this year, the country’s Ministry of Natural Resources and the National Forestry and Grassland Administration issued Document No. 38, clarifying the linkage mechanism between increments and existing stocks. Annual newly added urban and rural construction land shall, in principle, not exceed the area of revitalized existing land. This mechanism directly breaks the underlying logic of traditional incremental development from the land supply side. To obtain new quotas, local governments will have to first tap into internal potential and digest historical legacy idle and inefficient land. Coupled with the reality of sustained declines in real estate investment and a sharp shrinking of land grant revenues, existing assets can no longer cover renewal costs through the one-time monetization of "reserve, storage, and re-granting". This indicates a shift toward long-term operation to secure continuous cash flow. It also means more essential and refined requirements are needed for the transformation of urban development from development and construction to long-term operation.
Overall, current urban development has formed preliminary support in terms of funding supply and policy frameworks, but the institutional system supporting long-term operation still exhibits obvious shortcomings. Trillions of yuan in funds are accelerating into the track, yet the deep-seated structural contradictions of the industry remain unresolved, and the main bottleneck ultimately points to the systematic absence of long-term operating entities.
(1) Policy Background: Multi-tier funding is in place, but the construction focus remains hard to change
For a long time, China's urban construction evaluation system has been highly focused on demolition area, new construction volume, and engineering costs, while neglecting the essential attribute of cities as human settlement spaces. While large-scale incremental construction rapidly improved infrastructure, it also accumulated problems such as heavy real estate inventory pressure, difficulties in attracting investment for industrial parks, and high vacancy rates in office and commercial complexes. Coupled with the layout logic of "separation of industry and city" and "wide roads with sparse road networks", this further squeezed the growth space of urban existing stock, causing older communities, idle commercial assets, and inefficient industrial parks to accelerate their decline amid rapid urban expansion.
The significance of this 15th Five-Year Plan for Urban Regeneration lies in driving the underlying logic of urban renewal to shift from construction to operation. China’s Ministry of Finance has explicitly proposed combining investment in physical assets with investment in people. The deeper implication of this is that urban renewal is by no means a simple accumulation of engineering quantities, but rather prioritizes filling shortcomings in disaster prevention and mitigation and infrastructure, with safety and resilience as the baseline. At the same time, it uses industrial upgrading to drive new economic growth points and employment opportunities. On this basis, it takes the improvement of people's livelihood as fundamental to unleash the potential for improved housing demand and community service consumption. This is with the aim of achieving improving social relations and rebuilding daily interaction networks severed by a single growth logic, such as community micro-green spaces, slow-traffic systems, and intergenerational integration spaces, so as to reconsolidate community identity. Correspondingly, the evaluation criteria also shift from area and cost to frequency of use, social interaction intensity, and residents' sense of belonging, forcing participating entities to redefine spatial value starting from the real needs of people.
To address the core question of where the money comes from, the plan has established a multi-tiered funding framework consisting of fiscal guidance, financial support, state-owned capital undertaking, and social participation. Local government special-purpose bonds have become the mainstay of financing. By the end of 2025, the proposed use of special-purpose bonds by 28 provinces and municipalities to acquire idle existing land exceeded RMB 800 billion. An even more critical breakthrough is that the plan explicitly clarifies that special-purpose bonds can be used directly as project capital. Previously, this proportion remained below 8% for a long time, and the new policy will significantly leverage subsequent bank credit and social capital. Ultra-long-term special treasury bonds and central budget-within investments precisely cover public welfare fields. Projects such as underground pipe network renovations and basic renovations of old residential communities can receive 30- to 50-year treasury bond funding support. Tax incentive policies, too, are implemented simultaneously. Eligible urban renewal entities can enjoy exemptions, reductions, or deferrals of taxes such as deed tax, value-added tax, and land appreciation tax.
According to comprehensive market estimates, the total investment scale of urban renewal during the 15th Five-Year Plan period is expected to reach RMB 15 trillion, averaging about RMB 3 trillion per year. Among these, fiscal funds and policy-based financial loans constitute the baseline, which account for about 55% to 68%, local state-owned capital and industrial funds undertake the middle tier, and social capital and public REITs serve as supplements. By the end of 2025, a total of 78 public REITs had been issued nationwide with a total scale of approximately RMB 210 billion. Compared to the hundred-trillion-scale existing real estate assets, this remains in the initial stage, but its demonstration effect is attracting professional institutions to accelerate the deployment of front-end tools such as PRE-REITs.
However, it must be recognized that the design of the current funding system has still not completely broken away from traditional logic. The allocation and evaluation of core funds, such as special-purpose bonds and treasury bonds, remain primarily anchored to engineering-related indicators such as construction volume and completion milestones, lacking binding and incentive mechanisms for the long-term operational performance of projects after completion. In other words, the existing policy framework has resolved where the money for construction comes from, but has yet to answer where the motivation for operation comes from. A significant institutional misalignment still exists between the construction orientation on the funding side and the industry's goal of transforming toward operation.
(2) The absence of operating entities is the core bottleneck to urban regeneration and stock transformation
Although the funding framework has already taken shape, determining who will be responsible for long-term operations and how to enable existing assets to continuously create value are the most urgent challenges for the 15th Five-Year Plan’s urban regeneration. If project organization approaches remain stuck in the older construction-and-delivery logic, accumulated maladies such as inventory backlogs, rising implicit debts, and idle existing assets cannot be resolved from the root. Urban regeneration will easily return to the previous way of emphasizing construction over operations, ultimately creating a vicious cycle in which greater investment leads to greater idleness.
First, "project-based regeneration" is unsustainable, and the entire industry lacks an operational gene. The current division of work among urban regeneration entities is based on a model in which state-owned capital leads the overall framework, while private enterprises participate in execution. Urban investment companies are responsible for district-level coordination, land expropriation and demolition, and infrastructure construction. Meanwhile, private enterprises participate through competitive bidding for construction, smart upgrades, and other related projects. Both parties operate within a project-based framework, following a capital-intensive construction model that treats project completion and acceptance as the endpoint, with fund recovery as the primary objective. Once a project is completed and funds are spent, all participating entities quickly exit, and the renewed assets plunge back into a dormant state without management nor maintenance.
This dilemma is particularly pronounced among LGFVs. Many local LGFVs currently have debt-to-asset ratios exceeding 85%, while urban regeneration projects require substantial upfront investment and generate cash flow only gradually. The ramp-up period for revenues such as commercial rents and property management fees often takes five to eight years. Under rigid debt repayment pressures, LGFVs have neither the capacity nor the incentive to undertake sophisticated operations. Moreover, their main organizational capabilities are concentrated in financing and construction, with limited in-house expertise and experience in tenant attraction, commercial operations, and customer services.
Private enterprises face a different set of constraints. The gross margins on public-interest projects have fallen to 7%–12%, while payment collection cycles have extended to 2 to 3 years. Even private firms with commercial operating capabilities are generally limited to peripheral opportunities such as community retail and property management, with little access to integrated, district-level operations. This ultimately creates a negative cycle, with the greater the capital investment, the heavier the debt burden on LGFVs and the thinner the margins for private enterprises. This certainly weakens the willingness of all parties to participate.
Second, short-term performance evaluation systems are misaligned with the long-term nature of urban regeneration, systematically crowding out patient capital. With their advantages in asset scale, financing costs, and government-backed credit, central and local state-owned enterprises (SOEs) should, in principle, be the most suitable long-term operators in urban renewal. However, the current state-owned asset evaluation system is fundamentally misaligned with the long-term return profile of operational projects, effectively keeping the most qualified “patient capital” from engaging in long-term operations.
Centered on the State-owned Assets Supervision and Administration Commission’s (SASAC) “One Profit, Five Ratios” evaluation framework, the performance of central SOEs is heavily focused on short-term indicators such as annual total profit and return on equity. Economic value added (EVA), defined as net operating profit after tax minus the cost of capital, is an even more rigid annual requirement. Any asset-holding activity that fails to generate a positive return in the current period directly reduces performance, affecting executive compensation and internal resource allocation. By contrast, the typical profitability model for commercial real estate and district-level operations is that substantial upfront investment is required to build foot traffic and community engagement, with stable rental income generating long-term returns only at a later stage. Under annual EVA assessment pressures, such projects not only fail to contribute profits during the cultivation period but also become a drag on performance because of the capital they tie up. Consequently, the rational choice for enterprises is to divest or transfer these assets.
A typical example is the disposal by China Construction First Building Corporation of two Wanda Plaza projects in Changde and Suining. After being compelled to take over the projects as part of a debt restructuring, the projects generated positive profits during the holding period. Nevertheless, they were ultimately put up for transfer because long-term asset holding was fundamentally at odds with short-term performance evaluation requirements. This is not an isolated case, but a systemic consequence of institutional constraints. Performance evaluation standards across provincial and municipal state-owned assets supervision and administration commissions are highly similar and generally oriented toward annual results. Under this framework, SOEs that should be best positioned to provide long-term investment are constrained by short-term financial targets and thus unable to fully assume the role of “patient capital”. Urban regeneration requires operating entities capable of growing alongside urban assets over ten or twenty years, yet the current system forces SOEs to make investment and exit decisions according to annual performance assessments, effectively excluding high-quality long-term capital from urban renewal operations.
Third, fragmented ownership of existing assets and the lack of mechanisms for their consolidation pose a fundamental challenge to integrated urban regeneration. Highly fragmented property rights over existing assets are a key underlying constraint on integrated urban renewal and operations. Older residential communities may involve property rights dispersed among hundreds of individual households. Urban villages often combine multiple forms of tenure, including homestead rights, self-built housing, and unauthorized construction. Meanwhile, former industrial sites may involve complex layers of rights, including land allocated to SOEs, long-term leasehold rights, and secondary sublease rights. Comprehensive renewal operation therefore require the consolidation and restructuring of property rights at the legal level, granting the operating entity full control over the assets.
However, under the current legal framework, the primary mechanism available for compulsory consolidation of property rights is expropriation. Expropriation procedures are lengthy, costly, and socially sensitive, making them difficult to apply on a large scale. Voluntary market transactions, meanwhile, are difficult to advance because of the high coordination costs involved. As it stands, the opposition of a single rights holder can bring the renewal of an entire building or neighborhood to a standstill. Unlike some other jurisdictions, China’s existing urban assets generally lack market-based mechanisms for consolidating fragmented property rights, such as rights transformation or majority voting. As a result, even when operating entities have the willingness and financial capacity to undertake renewal, they may still be unable to obtain full control over the underlying assets. This constitutes the most fundamental yet least visible institutional barrier to the emergence of effective operating entities.
Fourth, the marketization of rule funds and operational governance safeguard systems is insufficient. In traditional land development models, the government was a dominant player. In urban regeneration, the government is gradually shifting to become an initiator and regulator, handing over more operational functions to the market. However, the supporting rule system has not been established at the same time. Questions such as who will set district operation standards, how to coordinate the interest boundaries of different operating entities, how to handle operational disputes, and who will conduct long-term evaluations of operational performance all lack clear institutional answers. In a rule vacuum, market entities lack stable expectations and are unwilling to rashly enter the field of long-term operations.
At the capital level, China’s financial system is predominantly bank-based, with the short-term nature of bank liabilities limiting the asset side largely to short- and medium-term lending, making it difficult to match urban renewal and operation projects with investment horizons of ten to twenty years. Insurance funds, pension funds, and social security funds, which are genuinely long-term sources of capital, face narrow channels for entering the urban regeneration sector. This is largely due to restrictions on investment scope, risk appetite, and regulation. Although public REITs have now been introduced, their scale remains negligible relative to China’s stock of assets, which is measured in the hundreds of trillions of yuan. Private instruments such as pre-REITs also face structural constraints, including rigid valuation requirements and historical compliance issues. The result is a maturity mismatch: urban renewal requires long-term capital, while the market is dominated by short-term funds seeking rapid turnover. Enterprises are therefore driven back toward the familiar model of high leverage and rapid turnover, which is fundamentally at odds with the logic of long-term, sustainable operations.
Although the financing framework for urban regeneration is taking shape and trillions of yuan in capital are entering the sector at an accelerating pace, the industry’s transition from construction to operations will ultimately depend on substantive institutional breakthroughs in four key areas, which are property rights consolidation mechanisms, long-term incentive structures, market-oriented governance rules, and the supply of long-term capital.
II. Urban Operators as Long-Term Managers in the Stock Era
Facing the four structural dilemmas of model and path dependence, short-term assessment mismatches, property rights integration difficulties, and insufficient rule and capital support, ANBOUND believes that for urban renewal to truly shift from a construction logic to sustainable operation, the core lies in systematically cultivating a new type of market entity distinct from traditional developers. i.e., the urban operator, and building around it a complete institutional ecosystem adapted for the long term. This is not a partial solution to the existing development system, but a systematic restructuring ranging from underlying rules and incentive mechanisms to institutional capabilities.
(1) Reshaping Subject Roles and Cultivating Urban Operators
The essential difference between urban operators and traditional developers is that the latter take "land acquisition—development—sales" as a closed loop, pursue rapid turnover, and exit upon completion. On the other hand, the former hold assets for the long term and operate continuously, with their returns deeply tied to district vitality, shifting the profit model from "selling houses" to "cultivating space", which accordingly lengthens the government's assessment cycle. Centering on this, all participating entities need to complete a systematic role reshaping.
First, "urban operation" should be divided into two levels, which are "macro-operation" and "micro-operation". "Macro-operation" refers to district-level overall space operation, involving comprehensive functions such as industrial introduction, commercial ecosystem construction, and public space management. The core capability of an operator is not building high-rise buildings, but weaving contractual and cooperative relationships among the government, the market, property right owners, and community residents, bringing the area to life through long-term investment. "Micro-operation", on the other hand, refers to the daily operation of specific spaces such as property management, community commerce, and public space activity planning, which can be undertaken by professional service providers, community organizations, or resident autonomous entities. The relationship between the two is clear. Macro-operators build the platform and ecosystem, while micro-operation entities populate content and services.
On this basis, the government should shift from "direct investment" to "rule-making and risk-sharing". It is suggested that the government proactively cede operational control and focus on two things. The first is establishing operational entry thresholds for property rights integration and a long-term performance evaluation system. Then, there is the alleviation of the operator’s cash-flow pressures during the initial development period through 15- to 20-year performance-based contracts, deferred disbursement of subsidies, and complementary public infrastructure and services. The government should be an "enabler" rather than a "handler", which is the premise for urban operators to grow independently.
Third, SOEs and LGFVs should also shift from being the “primary builders” to serving as an “asset anchor” and a “risk buffer”. For public-interest projects with very long payback periods, they should provide a safety net based on the principle of capital preservation with modest returns. More importantly, they can consider exploring a hybrid model of “SOE ownership + professional operation”. The SOE retains ownership or long-term lease rights and undertakes the upfront investment required for consolidating property rights and upgrading infrastructure, then brings in professional operators through public tendering to manage the assets on an asset-light basis and share in the returns. Once operations have stabilized, the SOE can gradually exit by bringing in private capital or through REITs. This model is already being piloted in some industrial parks and long-term rental apartment projects, and should be expanded in the future to a broader range of settings, including older residential communities, commercial districts, and former industrial sites.
Fourth, traditional developers should be promoted into urban operators, shifting their core capabilities from financing and engineering management to space integration, industrial investment attraction, commercial operation, community services, and asset management, extending the profit cycle to over ten years. For most traditional developers, becoming a "macro-operator" in one step is unrealistic. A more feasible path is to take "micro-operation" as an entry point for accumulating experience in niche sectors such as government-subsidized rental housing, industrial park operation, and commercial complex management, and gradually extending toward "macro-operation" capabilities.
Fifth, private enterprises should be encouraged to transition into “specialized service providers” and “innovation pioneers”. They should be supported in focusing on niche areas such as community-based retail and services, elderly care and childcare, smart property management, and event planning. This is to create an ecosystem built around a “main operating platform + specialized services provided by private enterprises”. In areas of micro-renewal where policies remain unclear and business models have yet to be validated, private enterprises need to be allowed to experiment and take the lead, while the government provides a regulatory sandbox environment to accumulate experience for institutional innovation.
Finally, communities and residents should be guided to grow into participating entities and benefit sharers. By establishing community governance committees to exercise advisory and supervisory rights, residents are given substantive say in the operational direction. Through property rights replacement for long-term rental dividends or value-added revenue shares, a benefit bond of "guaranteed floor plus excess sharing" is realized, forming a lasting community of co-governance with operators.
(2) Attracting "patient capital" to settle downward through a "patient system"
Regarding the "patient capital" needed for urban operations, researchers at ANBOUND believe that the prerequisite for "patient capital" is the guarantee of a "patient system". To resolve the contradiction in which SOEs participating in urban renewal are constrained by short-term performance appraisals and long-cycle project returns, the breakthrough point lies in optimizing the state-owned assets supervision system to align with the long-term value creation logic of urban regeneration.
The first is establishing differentiated performance assessments specifically for SOEs engaged in urban renewal. It is recommended that, during the 15th Five-Year Plan period, SASAC select a group of qualified central and local SOEs to establish dedicated urban renewal business units and implement independent, differentiated performance assessment systems. Key adjustments should include extending the assessment cycle from one year to five years or longer, as well as allowing profits from the first three or even five years to be excluded from current-period profit assessments. Additionally, it can opt to introduce non-financial indicators such as district vitality indices like foot traffic, tenant occupancy rates, and rental growth. Other indicators would include resident satisfaction, and changes in asset valuations. It can also provide preferential treatment for the cost of capital in EVA calculations, or allowing the capital tied up during the development phase to be deferred.
The second means is to promote long-term performance evaluation mechanisms to encourage “patient capital” to flow into projects at the local level. At present, funding instruments such as special local government bonds and ultra-long special treasury bonds have long maturities, but their use remains constrained by traditional project-based evaluation requirements. This, in turn, calls for clearly defined investment payback periods and cash-flow coverage. It is recommended that, for urban operations projects, a phased evaluation model covering both the “construction period + operation period” be established. During the construction period, the focus should be on project progress and budget execution. During the operation period, the focus should shift to cash-flow growth and asset appreciation, with a smooth transition between the two stages. At the same time, government subsidies and tax incentives should be linked to operational performance. For example, operators that achieve agreed occupancy rates and service satisfaction thresholds could receive fiscal rewards or tax reductions for five to eight consecutive years, creating a positive incentive mechanism of “the better the operation, the greater the benefits”.
(3) Innovate Property Rights Integration Mechanisms and Government–Enterprise Partnership Models to Strengthen the Institutional Foundation for Urban Operations
The rights holders of existing assets are fragmented, and property ownership is often complex, leaving operators without full control over the assets. Clear and stable rules, together with complete and controllable property rights, are the fundamental requirements for urban operators to make long-term investments. To address the dual bottlenecks of fragmented ownership of existing assets, the lack of market-based tools for integrating property rights, and government–enterprise partnerships that emphasize construction while neglecting operations, breakthroughs must be made simultaneously at the legal and policy levels to remove the underlying institutional barriers to long-term operations.
Lessons can be drawn from the experience of international projects such as the Roppongi Hills Mori Tower in Tokyo, exploring a market-oriented integration path of "property rights replacement + equity pooling + unified operation". Its main objective is to clarify the essential difference from administrative expropriation. Under the existing expropriation system, administrative compulsion is the essential mechanism, resulting in the complete transfer of ownership. However, the process is lengthy, costs are high, and social sensitivity is considerable. As urban regeneration is rolled out on a large scale, it is generally impractical to consolidate all existing assets through expropriation. By contrast, the rights conversion model focuses on exchanging rights and interests. Rather than eliminating existing property rights completely, it converts fragmented land and property rights into corresponding shares of the assets after redevelopment, or into long-term rights to rental income, which are then entrusted to professional operators for unified management. This model preserves the original rights holders’ long-term entitlement to returns while consolidating operational control under a unified framework, substantially reducing the social and time costs associated with coordinating property rights.
On the one hand, it is recommended that China clarify, through local legislation, the legal basis and implementation procedures for a “majority rule” in urban renewal. For district-wide renewal projects, a statutory consent threshold could be established. For example, approval from more than two-thirds of both the floor area and the number of rights holders. Once this threshold is met, comprehensive renewal could proceed, preventing unreasonable demands from a small number of rights holders from obstructing the project as a whole. Taiwan region’s Urban Renewal Act adopts a similar mechanism, which in practice has effectively reduced the institutional costs of coordinating property rights.
On the other hand, it is also recommended that a safeguard mechanism be established for dealing with property rights that are under dispute. For a minority of property owners who do not wish to participate in the renewal process, their interests could be addressed through measures such as equivalent property exchanges or negotiated acquisitions following a market valuation by an independent third-party professional institution. The procedures and compensation standards for such arrangements should be governed by dedicated urban regeneration legislation, balancing the efficiency of renewal with the protection of property rights. The main principle of this is to neither forcibly deprive any rights holder of their lawful property rights nor allow a small number of rights holders to obstruct the broader public interest.
Finally, at the level of government-enterprise cooperation, it is advisable to promote a "long-term district performance contract" system. At the project's inception, the government and operators can sign a long-term operation agreement of 15 to 20 years, clarifying the rights and responsibilities of both sides in property rights aggregation, construction investment, operation standards, profit distribution, public welfare services, and exit mechanisms. This will enable operators to plan their investment pace and return expectations across a sufficiently long time span.
(4) Long-term capital supply channels in the financing capabilities of market entities
The 15th Five-Year Plan provides favorable external conditions for transformation, but the eventual emergence of capable urban operators will depend on the restructuring of the capabilities of market participants themselves. Enterprises must move away from their reliance on high leverage and rapid turnover and instead adopt a gradual approach of “starting with pilot projects before scaling up” and “combining asset-light and asset-heavy models”. Priority should be given to areas with clear policies and robust demand, such as affordable rental housing, the revitalization of industrial heritage, and micro-regeneration at the community level. The goal should be to develop replicable, standardized operating models. For instance, the “master leasing and operation + brand licensing” model for long-term rental apartments, and the “rental spread + event income + value-added services” model for cultural and creative parks can be the starting points for transformation.
At the level of financial instruments, for large-scale urban operations, local governments are advised to promote models based on “concession rights” and “tax increment sharing”, packaging incremental local tax revenues generated during the district operation period, together with concession rights to commercial facilities in public spaces, as collateral to support operators in obtaining long-term credit. Policy banks should be encouraged to introduce preferential 10- to 20-year loans specifically for urban regeneration operations. Investment restrictions on insurance funds, pension funds, and social security funds need to be be relaxed to support their allocation to operating assets. A government–enterprise cross-subsidy mechanism should also be established, whereby the transfer of rights to develop complementary commercial facilities and operate public spaces replaces direct subsidies. In addition, a post-performance subsidy system can be introduced, linking fiscal funding to indicators such as occupancy rates, resident satisfaction, and employment contribution, with subsidies disbursed upon meeting the relevant targets.
For small-scale operators undertaking micro-renewal projects, a diversified funding mixture of “fiscal seed funding + social capital + community fundraising” can be adopted, with financing needs addressed through flexible mechanisms such as community self-governance, philanthropic venture investment, and crowdfunding.
Through coordination across these channels, a multi-layered, full-cycle capital ecosystem can gradually be established, combining “long-term credit + equity financing + REITs exits + fiscal subsidies + community fundraising”. This would address the issue at its root in terms of the maturity mismatch between “long project cycles and short-term funding”.
III. Case Studies of International Multi-Scenario Operating Entities
The essential role of an urban operator lies in coordinating the interests of all stakeholders. Whether it is the contractual relationship between government and the market, the alignment of interests among property rights holders, collaborative relationships among community residents, or the service relationship between operators and end users, successful urban regeneration projects invariably place operations ahead of construction, prioritizing long-term commitment over short-term arbitrage. Addressing the absence of effective operating entities cannot rely on existing stakeholders to transform themselves automatically. Instead, it requires the systematic establishment of mechanisms for property-rights consolidation, channels for patient capital, and a market-oriented regulatory framework.
(1) Tokyo's Mori Building: Rights Conversion and Long-Term Holding, Cultivating "Patient Capital" through "Patient Institutions"
Mori Building has demonstrated over half a century that a developer can become a “city builder”. Its flagship project, Roppongi Hills, was not developed and then sold off. Instead, it integrated offices, residences, retail, hotels, cultural facilities, a television station, parks, and public plazas across an 11.6-hectare district. Through a mixed-use, “city within a city” model, it created an urban unit that is walkable, inviting, and capable of sustained operation over the long term.
The primary institutional cornerstone supporting this model is the "rights conversion mechanism". Under the Tokyo government's redevelopment framework, Mori Building partnered with TV Asahi and more than 400 original landowners to complete interest integration through rights conversion. Original land and building rights were not completely cleared, but instead transformed into equity shares in the new project. This achieved spatial reorganization without disrupting the original social structure, greatly reducing the cost of property rights coordination. This mechanism directly addresses one of the key challenges currently facing China, i.e., the lack of market-based pathways for consolidating property rights, and provides a mature model for exploring a framework of “property-rights conversion + pooling of interests + unified operation”.
Secondly, there is the holding-type capital structure under a long-term low-interest-rate environment. Mori Building does not profit from one-off sales, but instead deeply binds itself to the city's destiny across the dimension of time by continuously enhancing district attractiveness and asset value. Following the opening of the project, Mori Building did not exit. It continued to manage the district through “Town Management”, organizing year-round events, maintaining the brand, optimizing services, and cultivating the community. As a result, even more than two decades after its opening, Roppongi Hills continues to attract more than 40 million visits annually. This experience demonstrates that only by establishing evaluation and incentive mechanisms suited to long-cycle projects can companies be willing to hold assets and invest deeply in their long-term operation, thereby genuinely becoming vehicles for “patient capital”.
Mori Building's practices show that the success of urban operations is inseparable from clear property rights integration mechanisms and stable long-term capital support. Roppongi Hills completed property rights assembly without disrupting the original social structure through the rights conversion mechanism, and achieved decades of prosperity by relying on long-term holding and continuous operation. In the case of China, property rights assembly almost relies entirely on protracted expropriation procedures, with market-oriented pathways severely lacking. At the same time, the high-leveraged, fast-turnover financial environment is also fundamentally incompatible with the logic of long-term holding and operation. To cultivate city operators, it is necessary to simultaneously advance institutional innovation in property rights integration and reform of patient capital supply mechanisms. Otherwise, regardless of how much capital is invested, the system will continue to reproduce a project-delivery cycle that prioritizes construction over operation.
(2) Sydney's Darling Harbor: Large-Scale Dual-Entity Development with Cross-Subsidies, with Commercial Interests-Public Value Linkage
Compared with Tokyo's rights transformation, the redevelopment of Sydney's Darling Harbor adopted a dual-entity model featuring a government-set framework and long-term enterprise operations. The New South Wales Department of Planning, Housing and Infrastructure (DPHI) is responsible for investing in public infrastructure such as arterial roads and utility networks, without directly participating in the allocation of commercial value-added gains. Meanwhile, Lendlease invests in and constructs the convention center, hotels, and residential-commercial facilities, with its returns directly tied to visitor traffic and rental levels. During the planning stage, both parties incorporated indicators such as public space quality and pedestrian connectivity into binding clauses, forming a rigid contract. The main mechanism in this is the "cross-subsidy". Here, the government funds the expansion of parks, water features, stages, display screens, and public art installations, using public investment to drive commercial appreciation. In turn, commercial revenues feed back into the long-term maintenance of public spaces through forms such as tax increments on property, creating a virtuous cycle.
In practical terms, Tumbalong Park was expanded by approximately 40% and designed to flexibly accommodate a wide range of activities, including concerts and markets. During construction, art installations were also used to build public interest and foot traffic in advance. Ongoing maintenance was subsequently undertaken by Lendlease under an operating agreement, while the government recouped its initial investment through incremental tax revenues, integrating development, operations, and maintenance into a unified model. This approach increased the amount of public open space in the inner city by approximately 30%, while avoiding an excessive long-term maintenance burden for the government and simultaneously enhancing both public and commercial value.
The significance of the Darling Harbor model for urban regeneration in China lies in the fact that the government foregoes one-off land conveyance revenues in favor of securing long-term tax sharing, thereby forming a community of shared interests with specialized operating entities. This innovative mechanism precisely addresses the dilemma currently faced in China regarding the absence of operating entities following the contraction of government functions. The key lies in introducing professional operators equipped with a sense of public mission to replace the traditional fragmented development model, thereby achieving the sustainable enhancement of regional commercial value. Data show that this model is projected to generate AUD 15 billion in comprehensive returns over the next 20 years, attract an average of more than 26 million visitors annually, and drive the formation of a vibrant commercial district comprising thousands of retail shops and over a hundred dining establishments, fully validating the immense value of sustainable public-private partnership models.
(3) Kyoto's Park-UP: Community-Led Micro-Space Operation that Resolves the Governance Dilemma of Small Community Industrial Spaces
Unlike large-scale district regeneration, Kyoto faced the challenge of revitalizing over 950 small community parks. Initially, Kyoto introduced the Park-PFI system, which relied on private enterprises to lead park operations and management. Although this measure somewhat alleviated fiscal burdens, it sparked protests from community residents due to over-commercialization. By 2024, the Kyoto municipal government optimized and upgraded the system, launching the Park-UP model. This model centers on local community resident groups as the core leaders rather than enterprises. Its specific operational mechanism is as follows: resident groups first submit a park utilization proposal to the municipal government. After thorough discussion and consensus-building within the respective area, they are approved to establish a park operation committee. This committee formulates operational guidelines tailored to local conditions. During operations, the committee can bring in support groups such as enterprises, non-profit organizations (NPOs), and universities to secure assistance with human resources, funding, and event planning, while decision-making power remains firmly in the hands of community residents.
In terms of how the parks are used, residents can negotiate and adjust the rules according to their own needs, such as allowing small markets or children’s free play during designated periods, rather than pursuing commercial returns indiscriminately. Some parks have chosen to integrate public spaces with libraries and childcare support facilities, or even transform them into disaster-prevention hubs, instead of overbuilding commercial facilities such as cafés and restaurants. The government’s role has shifted from “leader” to “enabler of rules and institutional support”, while operating entities emerge organically from within the community.
For China’s urban renewal practices, large numbers of public spaces in aging residential communities, pocket green spaces, and underused community facilities are neither well suited to commercial operation nor easily amenable to large-scale management by urban investment companies. The Park-UP model therefore provides an important reference. Follow-up evaluations conducted two years after its implementation in Kyoto indicate that most Park-UP parks no longer place commercial revenue at the top of their priorities. Instead, they have shifted toward contribution to the local community, using improvements in park services to enhance surrounding land values and facilitate social interaction. The Kyoto municipal government regards the system not merely as a park revitalization policy, but as a form of community governance mediated through parks. It is particularly suited to small- and medium-sized community parks of 2,000 square meters or less. The model not only effectively addresses the shortcomings of commercially driven approaches, but also better responds to the deeper needs of an aging society by encouraging residents to take an active role in the governance and management of their local spaces.
(4) Johannesburg’s Old Commercial Center: Revitalizing Urban Fringe Areas through Non-Confrontational Property-Rights Negotiation
Historically, downtown Johannesburg suffered prolonged decline due to inadequate government services and high crime rates. Over a period of 36 years, property developer Gerald Olitzki gradually acquired and redeveloped properties in phases, expanding the area under his property management to approximately 300,000 square meters. He ultimately created a safe and prosperous area known as an “oasis”, serving approximately 250,000 people every day. His approach involved considerable institutional innovation. First, he persuaded the municipal government to grant him a 45-year lease for a public square, establishing a stable public-private cooperation framework that gave him the confidence to undertake deep and long-term redevelopment. This corresponds to the previously proposed concept of long-term district performance contracts.
Rather than relying on the conventional approach of forcibly evicting illegal occupants, he negotiated directly with them and paid compensation to facilitate their peaceful relocation. By converting the social costs of forced eviction into negotiated compensation, he substantially reduced social friction and demonstrated a non-confrontational approach to resolving property-rights disputes.
At the same time, in areas where the government was unable to provide security and cleaning services, the project leadership directly invested in establishing private security and cleaning systems and imposed a clear ban on street vending, thereby restoring order amid a highly chaotic environment. He also introduced a low-barrier approach to supporting local entrepreneurship. As long as entrepreneurs could present a credible business plan, they were provided with affordable space, allowing family-law practices, clinics, and small family-run businesses to enter a safe operating environment at relatively low cost.
In terms of the tenant mix, he did not introduce upscale restaurants designed around middle-class tastes. Instead, he focused precisely on the everyday needs of approximately one million daily commuters, designing the commercial offering around three key moments, i.e., breakfast, lunch, and the journey home. Affordable hot meals, ATMs, pharmacies, and personal-care retailers were introduced to ensure that commercial activity was genuinely embedded in the everyday lives of ordinary people.
Olitzki is, in essence, a “private-sector urban operator”. When government capacity was absent or being scaled back, he used long-term lease rights to establish operational legitimacy, resolved property disputes through non-confrontational negotiation, exchanged the provision of public goods, such as security and cleaning, for a functioning commercial environment, and encouraged local small businesses through low-barrier incubation. This experience offers direct lessons for the many peripheral or existing urban areas in China where the government wants to manage them but lacks the capacity, while the market wants to enter but does not dare to. The approach is to use long-term contracts to create stable expectations, resolve social tensions through flexible negotiation, and generate sustainable cash flow through precisely targeted services. The results were significant. The area became a rare “oasis” in the city center, serving approximately 250,000 people each day and supporting more than 1,000 retail outlets and over 100 food and beverage establishments. The case shows that, in highly challenging environments, order itself can be the scarcest form of commercial value, and a resilient operator can play a decisive role in rebuilding that order.
IV. Conclusion
As urban regeneration in China enters a more challenging and complex phase, the industry has reached a critical turning point from the “era of construction” to the “era of operations”. The establishment of the policy and financing framework is only the first half of the journey. The real test lies in determining who can remain deeply engaged over the long term and sustain ongoing operations, enabling existing assets to regain vitality and realize their full potential. Addressing this challenge cannot depend on existing stakeholders transforming on their own. Instead, it requires institutional innovation to foster a new generation of urban operators and systematically remove the bottlenecks surrounding property-rights consolidation, performance evaluation mechanisms, and long-term capital.
International experiences demonstrate that successful urban regeneration can create value sustainably because it is, in essence, an ecosystem carefully woven around the interests of multiple stakeholders. Only by making early operation a mandatory requirement and turning long-term commitments into real incentives can urban regeneration truly succeed. The ultimate goal, as it stands, is to establish a comprehensive and sustainable urban renewal operating system that enables cities to achieve high-quality development in the era of existing assets.
