China’s clean heating policy since 2017 has notably improved air quality. However, the share of non-fossil sources in China’s urban district heating systems remain low, and many new coal-fired combined heat and power plants are being built. Strategic choices for district heating technologies are necessary for China to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060. Here we find that replacing polluting coal technologies with new and improved coal-fired combined heat and power plants will lead to substantial carbon lock-in and hinder decommissioning of associated coal-fired electricity generation. Expanding the use of industrial waste heat and air/ground-source heat pumps can avoid the need for new combined heat and power construction and reduce carbon emissions by 26% from 2020 to 2030. Our findings indicate the importance of the government’s recent proposals to decarbonize district heating.