This study explored the theories of cultural heritage protection and the relationship among local residents. Through observation and in-depth interviews of local residents of different ages and professions, it obtained relevant research data so as to learn the understanding of cultural heritage of Gulangyu of local residents. With the grounded theory was applied for a bottom-up analysis of the value, status quo, and problems of Gulangyu and proposed suggestions for the future protection and development of heritage. The analytical results revealed six core aspects. First, the heritage values of Gulangyu in the past include ＂integration of Chinese and Western cultures, architectural culture, natural culture, and slow lifestyle＂. Second, the major issues currently are the issues of communities including ＂community dysfunction, weak infrastructure, and inconvenient life＂. Third, the problems of population include ＂loss of local residents, insecurity for the interests of local residents, unreasonable population structure, severe loss of culture, and lack of traditional industry＂; Fourth, management issues include ＂problem of heritage positioning, strong reliance on commerce of tourism, security risks, improper protection of houses, and poor sanitation＂. The suggestions for the protection of cultural heritage of Gulangyu include: Fifth, cultural precipitation, which means ＂protection of history and culture, exploration of local culture, improve of population quality, and high-end positioning＂; Sixth, development strategies which cover ＂being peopleoriented, strengthening community education, rational planning, and tourist diversion＂. This study provides a reference that community leaders can use to make decision in terms of development in the future. Finally, the above six core aspect were further analyzed by using selective coding to propose propositions, identified their causal relationship, and drew theoretical relationship frame diagram for reference.