Ecological industry can be thought of as a move toward sustainable development while reducing waste and avoiding pollution, especially in resource-based cities. This study presents a system dynamics approach to analyzing the environmental and economic effects of the eco-industry system by simulating long-term trends. Focusing on West China’s typical coal-based city of Huinong, a system dynamics model named industry-effect-policy system dynamics (IEP-SD) has been designed to evaluate the integrated effects of the industrial system. The simulation results indicate progressive environmental and economic benefits of the eco-industry system, along with prospective economic growth. In addition, the model identifies some defects and disadvantages of western China’s typical industry system, such as the extensive increase of local policy-preferential industrial sectors, limited and torpid development of other industries, and a certain level of industrial structure instability. An industrial structure coordination option is finally offered and then proved by the model to balance local environmental and economic effects.