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An integrated modelling approach is developed to simulate ecological economics processes of mountainous watershed of Heihe river basin, northwest China. The objectives are 1) a hydrologic unit model HLM_HMU was developed; 2) the impacts of LUCC on the hydrological processes based on different scenarios were simulated respectively; and 3) the Payment for Ecosystem Services (PES) curve of prohibition grazing is given. The hydrological results show that the observed and simulated data have a good fit, in which the Nash–Sutcliffe efficiency, balance error, and explained variance are 0.69, -0.13, and 0.62, respectively; the model can simulate the majority of peaks well; the source code of Spatial Modelling Environment (SME) needs to be deeply understood to improve the algorithms of interpolation and conflux; the PES result shows that prohibition grazing will occur completely when the price of PES reached to 17.42 yuan, and the increased amount of ecosystem services is 2.13 × 108 m3.The main purpose of this paper is to build a better understanding of developing a meaningful integrated model in the study area to solve its ecological and economic problems.