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The development of western China is confronted with serious challenges on water resources due to the ecosystem's vulnerability and the increasing demand on water. Water cycle modelling-to a changing environment is the base of sustainable water management. The main aim of this paper is to develop a distributed hydrological modelling coupled physical process grid with the Time Variant Gain Model (TVGM) that was developed by the first author during the 1990s at the University College of Galway, Ireland, as a nonlinear system approach applied to river flow forecasting. It can be shown that the integrated hydrological system approach (TVGM), with distributed physical process or conceptual units, could obtain a flexible result for hydrological modelling given the scarcity of fully physical process data. By preliminary application and examination in the Heihe mountainous basin of northwest China with an area of about 10 000 km(2) in arid and semiarid regions, it was found that this model is successful, with more advantages than the conditional distributed model applied in China. Further research on this approach is addressed in this paper.