The accelerating pace of climate change, coupled with large-scale rapid urbanization, has increasingly exposed metropolitan areas worldwide to severe urban flooding, the depletion of groundwater resources, and multidimensional ecological crises. In this context, the Sponge City Initiative (SCI)-conceptualized by the People’s Republic of China in 2013 and implemented between 2015 and 2016 across thirty pilot cities-represents one of the most comprehensive urban climate adaptation policies globally, marking a transition from conventional grey infrastructure systems toward nature-based green infrastructure solutions. This study provides an in-depth examination of the initiative’s historical and philosophical foundations, engineering applications, ecological-economic performance indicators, and the structural challenges it has encountered. Inspired by the ancient wisdom of traditional Chinese agricultural practices, landscape architect Kongjian Yu developed this model to manage rainwater at its source through principles of Low Impact Development (LID), emphasizing the retention, absorption, filtration, and reuse of stormwater. The study analyzes the implementation of the initiative in pilot cities with diverse geographical and climatic characteristics, including Wuhan, Shenzhen, Xining, and Sanya, while also evaluating the macroeconomic dynamics of Public-Private Partnership (PPP) financing models. Furthermore, the devastating flood disaster that occurred in Zhengzhou in 2021-revealing the technical limitations of the initiative-demonstrated the system’s vulnerability to extreme weather events and prompted calls for substantial policy restructuring. Finally, the study argues that the initiative should not be understood solely as an ecologically or technologically neutral project. Rather, it also functions as a political instrument that may generate spatial inequalities through processes such as urban gentrification, environmental justice concerns, and hydro-social dynamics.