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Restoration forestry （forest rehabilitation） or re-vegetation is one effective measure to solve environmental problems, notably soil erosion. It may be further stimulated by the Clean Development Mechanism for carbon sequestration. However, there is an intensive and on-going debate about the adverse effects arising from afforestation in dryland areas, such as soil drying up which may cause further damage to the success of forest restoration, and the water yield reduction from watershed which may harm the regional development. On other hand, some preliminary studies showed a possibility that these adverse effects may be diminished more or less by properly designing the system structure and spatial distribution of forest/vegetation in a watershed. However, it is urgent to develop an evidence-based and sustainable new forestry policy for harmonizing forest-water interrelation. As a leading country in afforestation, China is beginning to develop a more trans-disciplinary and cross-sectoral forestry policy for harmonizing forestry development with water management. The main points of the changing new forestry policy should include： （1） Establishing a regional development strategy focusing on harmonized forest-water relations; （2） Taking forest-water interactions as an important part of evaluation; （3） Reducing the ＇eco-water＇ quota of forests through technical advancement; （4） Developing and extending water-adaptive forest management practices; （S） Strengthening forest ecohydrological research and decision support ability.