Understanding the mechanisms behind China's water environmental governance challenges is significant. This study employs fuzzy-set qualitative comparative analysis to construct a localised political-economic-social-technical framework tailored to the realities of local government governance and investigate typical cases from the second round of environmental inspections conducted by the central government. The findings are as follows: (1) Two representative types of pathways for the formation of water governance challenges at the local government level are identified: ‘government capacity-constrained’ and ‘formalism in governance’. (2) In the ‘government capacity-constrained’, ‘weak official turnover, strong institutional environment, weak fiscal expenditure decentralisation, and weak innovation of green technology’, five conditions interact with one another. The stability of official positions and limited autonomy, combined with insufficient social oversight, obscure the empowering role of the institutional environment and constrain local government governance capacity, thus impeding the effectiveness of local environmental management. (3) In the latter pathway, ‘strong institutional environment, substantial fiscal expenditure decentralisation, robust digital infrastructure, significant innovation of green technology, and weak official turnover or strong support of green funding’, five conditions interact in complex ways. A favourable governance environment enhances the constraints imposed by the institution, and under the logic of avoiding accountability, formalism is likely to emerge, presenting challenges for water management.