After a decade of economic reforms and the consequent relaxation of social controls, Chinese cities are in the midst of an extraordinary transformation. An essential question is whether the major cities of coastal China are now beginning to adopt spatial and social characteristics typically associated with other Third World cities. Will China's transition to a market economy — particularly a market system for the allocation of urban space — result in spatial polarization of social groups within cities? This paper focuses on changes in processes of housing production as a means of examining this question. The assertion here is that China has entered a new period of housing construction, which emphasizes the redevelopment of the long neglected inner cities. The case of Beijing is looked at in detail, not as a means of describing ‘typical’ processes, but of showing how the administrative decentralization which is inherent in the reform process allows for a return to localized processes of housing and urban development.