Innovation is not an isolated activity for enterprises. On the contrary, a mass of information exchange with the external world is required. That is why an enterprise and the environment it is involved in should be considered as a system. Due to inherent characters, an industrial cluster creates good conditions for innovation and can be a special innovation system. In China, most industrial clusters lie in the middle section of the value chain, while sections of high margin are in the hands of others, i.e., R&D and marketing. Therefore, improving the industrial added value has been put on the agenda. Based on the case of a Chinese city, Shaoxing, this paper discusses its textile industrial cluster, which has become one of the key driving forces supporting the rising economy. Our study shows that building the regional innovation system based on industrial clusters in Shaoxing is a great choice to improve innovation competitiveness. As the industry is one pillar of China's economy, it is important to study this trend for further growth of the industry.