Abstract: Based on a review of the mutation of gentrification in the west, this paper examines the mechanism and consequences of China’s emerging gentrification under the background of market transition. Prawing on a detailed anlaysis of China’s political economic transformation in the post-reform era, this study shows that strong state intervention plays an important role in promoting China’s gentrification. This can be seen from three aspects. First, the state stimulates and accommodates the consumption demands of the emerging middle class through launching land and housing reforms. Second, to create optimal conditions for capital circulation, the state makes policy interventions and invests heavily in environment beautification and infrastructure construction. Third, the state mobilizes the most important resources, e.g. land and resettlement housing, to tackle the problem of fragmented property rights and to facilitate gentrification. Under market transition, China’s gentrification resembles its western counterparts, and shows two distinctive characteristics: the state plays a predominant role throughout the gentrification process; the social interests of low-income groups have been overwhelmed by the economic interests of local government and real estate developers. This particular form of state-sponsored gentrification in China is motivated by the pursuit of economic growth and urban development, at the cost of large-scale residential displacement. At the end of this paper, the authors elaborate the negative effects of gentrification in Chinese cities, and discuss possible solutions to overcome these adverse consequences.