This graduation project focuses on the livability issues in the historic neighbourhood under the Chinese context. The current Chinese heritage preservation focuses on conserving material, while livability means adapt physical settings for present use. Therefore, the living condition in the historic neighbourhoods is often neglected. This thesis aims to solve the conflicts between heritage preservation and livability by using a broader definition of heritage value. Literature suggests that the community is also a part of the heritage. The well-being of the local community will add a unique identity to the heritage site. So heritage preservation and residents' livability should be linked together. The value of heritage is attributed to the material and shown in the social aspect. There are multiple values attributed to a heritage site, and the spatial transformation process is actually the consequence of prioritizing specific values. By comparing three heritage management approaches that prioritizing different stakeholders and values, a hypothesis is made. The hypothesis states that the value-based approach can be used to improve livability in historic neighbourhoods under the Chinese planning context. This thesis uses Meiyuan Xincun as a site to test this hypothesis. There are three steps in the research by design process. Firstly, research on the broad heritage value will be done to understand the values based on perspectives from all stakeholders. These values overlap or even conflict with each other, and prioritising certain values will lead to different spatial transformation strategies. Secondly, the material-based approach (prioritizes the value of the physical element) and the living heritage approach (prioritizes the local community) are tested to explore the conflicts between the current heritage preservation approach and community needs at the spatial level. Then the value-based approach is adopted to solve the conflicts and come up with spatial strategies. Lastly, design scenarios are developed based on these strategies and are assessed by livability indicators. The outcome of this thesis is a set of methods to elicit heritage values, spatial transformation strategies, and design scenarios to show the livable future in historic neighbourhoods. The research concludes that the local community's livability is vital in preserving historic residential areas' true value. The value-based approach can be used in the current Chinese planning context to improve livability.