With ever increasing water demands and the continuous intensification of water scarcity arising from China’s industrialization, the country is struggling to harmonize its industrial development and water supply. This paper presents a systems analysis of water withdrawals by Chinese industry and investigates demand-driven industrial water uses embodied in final demand and interregional trade based on a multi-regional input-output model. In 2007, the Electric Power, Steam, and Hot Water Production and Supply sector ranks first in direct industrial water withdrawal (DWW), and Construction has the largest embodied industrial water use (EWU). Investment, consumption, and exports contribute to 34.6%, 33.3%, and 30.6% of the national total EWU, respectively. Specifically, 58.0%, 51.1%, 48.6%, 43.3%, and 37.5% of the regional EWUs respectively in Guangdong, Shanghai, Zhejiang, Jiangsu, and Fujian are attributed to international exports. The total interregional import/export of embodied water is equivalent to about 40% of the national total DWW, of which 55.5% is associated with the DWWs of Electric Power, Steam, and Hot Water Production and Supply. Jiangsu is the biggest interregional exporter and deficit receiver of embodied water, in contrast to Guangdong as the biggest interregional importer and surplus receiver. Without implementing effective water-saving measures and adjusting industrial structures, the regional imbalance between water availability and water demand tends to intensify considering the water impact of domestic trade of industrial products. Steps taken to improve water use efficiency in production, and to enhance embodied water saving in consumption are both of great significance for supporting China’s water policies.