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Much of the academic literature on China’s successful adaptation to the policy challenges posed by economic development credits two distinctive principles, gradualism and local experimentation. However, the extent to which these principles aid policy adaptation to environmental policy challenges is less well-explored. This article examines how these principles have shaped policy adaptation in water resources management, a notably complex policy domain. It asserts that while gradualism and local experimentation have aided in the adoption of economic mechanisms like water pricing reform and water rights trading to regulate water use, institutional reforms have been undermined by an over-reliance on central control and direction. This phenomenon, which we call hierarchy, constrains China’s ability to address diffuse, inter-jurisdictional and multi-sectoral water management challenges like nonpoint source pollution, and may inhibit its ability to address similarly complex sustainable development challenges into the future.