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China has now become the largest producer and exporter of textile and clothing products in the world. The objective of this research is to explore the relationship between the complicated interactive process of institutional change and the development of industrial clusters in China. It focuses on the distinctive institutional factors that have allowed the textile and clothing clusters in China to benefit from globalisation while those in other transitional economies have not done so. The research also aims to make a thorough investigation into how the dynamic change of the public-private interface has influenced the development and upgrading of the textile and clothing clusters in contemporary China-in-transition, with all the political and social implications that the process entails. The research mainly uses the New Institutional Economics Approach (NIE) and gives weight to institutional change through multiple case studies of textile and clothing clusters in Zhejiang province, East China. The micro case studies are effective in illustrating the interaction between institutional change and industrial development. The research argues that the unique institutional factors leading to the rapid development of textile and clothing clusters in China include hybrid ownership, public entrepreneurship and the specialised wholesale market. The research has also shown that the theory of local state corporatism alone fails to explain the great success of textile and clothing clusters in China. The development and upgrading of textile and clothing clusters in China has witnessed extraordinary institutional change through co-evolution between the public sector and the private sector, which can be reflected through the interaction among social networks, entrepreneurship and performance of local government. The flexibility in the public-private interface is one unique endogenous institutional arrangement embedded in the economic system in China. It is a dynamic process of institutional embeddedness, deembeddedness and reembeddedness with a diversity of economic regimes coexisting at different hierarchies of government