Abstract: Chinese cities are transitioning from urban spatial expansion to inner-city regeneration. Examining past urban renewal practices, identifying existing tensions and challenge, and exploring sustainable mechanisms for future urban renewal are urgent tasks of significant importance. This paper reviews theories of historical institutionalism, particularly incremental institutional change theory, and uses this conceptual framework to analyse the evolution of Shanghai's urban renewal institutions from 2002 to 2021. It finds that Shanghai's urban renewal mechanism has transitioned incrementally through instituional conversion and layering, and actual practices often deviate from formal rules. Formal and informal rules coexist, and the introduction and promotion of new rules repeatedly encounter obstacles. The paper argues that within China's bureaucratic system, where local governments have significant discretionary power, policy implementation is the key stage for actual institutional changes. Therefore, it advocates for applying the incremental institutional change theory in the policymaking process. Before introducing any new policies, it is necessary to comprehensively investigate the discretionary power vested in stakeholders, infer potential stakeholder reactions, and assess their consequent impact on policy implementation. This approach can fundamentally enhance the effectiveness of new policy introduction and improve urban renewal mechanisms.