Sustainable resource governance in China: Mitigates regional inequality and promotes SDGs through virtual water-carbon compensation

China’s rapid economic growth has increasingly depended on inter-regional trade that separates consumption-driven economic benefits from production-side water consumption and carbon emissions. This separation obscures regional responsibility mismatches and weaken progress toward the Sustainable Development Goals. Here we develop an equity-oriented and pressure-adjusted water–carbon framework to quantify and explain coupled virtual water and virtual carbon-credit transfers across China from 2002 to 2017. The framework combines multi-regional input–output analysis, pressure-adjusted evaluation using water scarcity and carbon-neutrality stress indicators, logarithmic mean Divisia index decomposition, and compensation scenario analysis. We find persistent resource–economic misalignment across regions and sectors: agriculture dominated national water consumption, whereas energy and mining drove carbon emissions and embodied carbon transfers. Virtual water flows increased from 174.80 to 247.71 Gm3, and virtual carbon-credit flows peaked at 5.67 Gt CO2e, with mega-city clusters acting as major net importers and inland agricultural and energy-producing regions as major exporters. Incorporating regional constraints substantially changed the interpretation of trade effects. Virtual water trade generated scarcity-adjusted water losses of 12.73 Gm3-equivalent, while virtual carbon-credit trade shifted from an apparent 150.25 Mt emission reduction to a pressure-adjusted carbon burden of 425.26 Mt-equivalent. Decomposition results show that economic scale expansion was the dominant driver of water–carbon pressure, whereas intensity improvements offset part of the increase but could not fully counteract trade expansion and persistent energy-intensive specialization. Compensation simulations indicate that virtual water–carbon compensation can reduce GDP-based regional inequality, particularly when ecological efficiency and comparative advantage are incorporated. These findings show that China’s water–carbon mismatch is a supply-chain-induced equity issue as well as an efficiency challenge. Integrating pressure-adjusted embodied-flow accounting with differentiated compensation can support more equitable water-carbon governance, and better align economic growth, supply-chain governance, and regional environmental justice.