In the urban economic system of China, there exists a close and complex relationship between the real estate sector and the manufacturing sector. On one hand, the excessive prosperity of the real estate market may squeeze out the manufacturing sector; on the other hand, the former may provide favorable conditions for the development of the latter. In policy practice, the government uses the land revenue obtained from the real estate sector to support the development of the manufacturing sector. This behavior protects the manufacturing sector in the city and is conducive to eliminating potential real estate bubbles. This chapter uses econometric models to test the impact of the government’s industrial upgrading policies on bubbles. The results show that upgrading policies and the manufacturing upgrading would significantly reduce the size of the bubble. The implication of this result is that the government not only needs to eliminate bubbles through regulation policies, but also needs to “fill” the bubbles by promoting the manufacturing upgrading. Adopting both measures at the same time can reduce the economic fluctuations when clearing the bubble.