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Abstract: The NIES Integrated Catchment-based Eco-hydrology (NICE) model was applied to the Biliu River catchment, northern China, to estimate the carrying capacity of the water resource there. The model reproduced well the water and heat budgets after the construction of a reservoir in the middle reach of the river. It also correctly backcasted the degradation of water resources such as river discharge and groundwater after the completion of the reservoir. Calculation of the normalized difference vegetation index (NDVI) from satellite data clearly showed vegetation degradation downstream of the reservoir. Statistical analysis of a decoupling indicator based on the simulated water carrying capacity and on the satellite data of vegetation index indicated that water-related stress in Dalian city, where the economy has grown rapidly after the completement of the reservoir, has increased in accordance with the environmental degradation below the reservoir. The results indicate a close relationship between water resource and economic growth, which has greatly affected ecosystem degradation and its serious burden on the environment in the catchment. The simulated results highlight the linkage between urban development in Dalian and sustainable water resource management. [ABSTRACT FROM AUTHOR]