This study examines urban renewal planning in China’s megacities, with a particular focus on the Ministry of Housing and Urban–Rural Development’s recent policy directives to “prevent large-scale demolition and construction” and to “integrate preservation, renovation, and demolition.” The research holds distinct contemporary significance and practical relevance. By innovating across dimensions such as social customs and historical character—while remaining aligned with China’s planning legislation—it underscores the core principle of holistic heritage conservation. Grounded in planning law, the study presents a comprehensive and systematic approach to achieving legally compliant urban renewal within the broader context of stock-based urban management. As a representative megacity, Hangzhou’s experience in urban renewal exemplifies a balanced approach between preserving historical character and promoting social equity. The city has prioritized a “people-centered” value system, demonstrating particular prudence in addressing issues related to original residents, community culture, and historical heritage. While enhancing urban functionality, Hangzhou has simultaneously maintained and integrated its historical identity. This approach not only embodies the humanistic concerns inherent in planning but also illustrates the social warmth embedded in the legal and institutional framework governing megacities. Given the complex spatial, functional, and socio-cultural characteristics of megacities, this paper explores the principal challenges faced in the planning and renovation of old urban quarters—particularly concerning urban development, heritage preservation, and policy implementation. Drawing upon Hangzhou’s model of legally compliant planning and design for old district redevelopment, the study identifies multiple innovative strategies across diverse dimensions. The findings offer both theoretical guidance and empirical insight for advancing urban renewal practices in China, while contributing to the development of sound, compliant planning and legal frameworks for future urban renewal governance in megacities.