Abstract: After thousands of year's development, an original large-scale urban agglomeration form was shaped in the Middle Reaches of the Yangtze River. The central city of urban agglomeration is Wuhan, and the economic relationship among the cities inside the agglomeration is very close. On the basis of the analysis of the Middle Reaches of the Yangtze River and the comparison with urban agglomerations in Yangtze River Delta and Zhujiang River Delta, we found that the cause of the laggard economy and the large gap between the cities inside the urban agglomeration is the stitutional barrier. Then we discussed a series of suggestions aimed to the coordination of the region sustainable development, such as the transition of government function, the establishment of the interregional coordinating system, the reforming of the urban landuse system，and the development of the small towns. On the basis of these suggestions, a strategy that aims to establish an urban agglomeration in the Middle Reaches of the Yangtze River, which is surrounding Wuhan city, was expounded. We believe,that the establishment of this urban agglomeration will accelerate the industrial transition from east to west,to provide a strategic fulcrum for the “Western Development”，which will be beneficial to the sustainable and rapid economic development in China.

Key words: institutional innovation, Wuhan City, urban agglomeration in the Middle Reaches of the Yangtze River