Large-scale forestation has been undertaken over decades principally to control the serious soil erosion in the Loess Plateau of China. A quantitative assessment of the hydrological effects of forestation, especially on basin water yield, is critical for the sustainable forestry development within this dry region. In this study, we constructed the multi-annual water balances to estimate the respective grand average of annual evapotranspiration (ET) and runoff for forestlands and non-forestlands of 57 basins. The overall annual runoff and corresponding runoff/precipitation ratio were low, with a mean of 33 mm (7%) ranging from 10 (2%) to 56 mm (15%). Taking the grand average of annual precipitation of 463 mm for all basins, the corresponding grand averages of annual ET and runoff were 447 and 16 mm for forestlands, 424 and 39 mm for non-forestlands, respectively. Thus, the corresponding ratios of annual ET and runoff to precipitation were 91·7 and 8·3% for non-forestlands, 96·6 and 3·4% for forestlands, respectively. Although the absolute difference in grand average of annual runoff was only 23 mm, it represents a large difference in relative terms, as it equates up to 58% of annual runoff from non-forestlands. We argue that the large-scale forestation may have serious consequences for water management and sustainable development in the dry region of NW China because of a runoff reduction. This study highlights the importance of quantifying the ET of forests and other land uses and to examine how land cover change may affect the water balances in an arid environment. Copyright © 2011 John Wiley & Sons, Ltd.