Due to urbanization in China, some refineries have been transformed from industrial zones into mixed industrial and residential zones, thus forming a pattern of the refineries encircled by the city. This not only increases the risk burden of the refineries, but also gives rise to strong socially negative public opinions that become a serious bottleneck for the development of the refineries. This paper discusses the challenges faced by urban refineries in China from the aspects of urbanization, provides an overview of the current status of such refineries, conducts an in-depth reflection on China's current policies taking into consideration and proposes technological frames that may be adopted to promote their development. The research defines safety protection distance and health protection zone as well as helps in selection of the development alternatives for urban refineries in terms of whether to make upgrades in-place or to relocate the enterprise to tackle the problems arising from the encirclement of the refineries by cities.