Groundwater is a critical water resource for human survival and social-economic development in arid and semi-arid areas. With the development of economy and the continuous increase of population, and especially to meet irrigation demands, aquifers are subject to intensive exploitation in the Yanqi Basin, in the central region of Xinjiang, China. The decreasing groundwater table changes the interactions between groundwater and surface water. To quantitatively evaluate the exchange capacity between river and groundwater, a flow model based on MODFLOW was built to simulate the interactions of river and groundwater in Yanqi Basin in a 10 years period. Results show that the water exchange capacity between surface water and groundwater increased obviously with the increasing groundwater exploitation. The exchange capacity increased from 1.18 hundred million m3 in 2004 to 2.2 hundred million m3 in 2013, when the groundwater exploitation increased from 1.19 to 3.8 hundred million m3 in the same period. The groundwater exploitation was close to the value of available exploitation quantity in this area. The increasing river seepage due to excessive groundwater exploitation also plays an important role in the water level decline in the Kaidu River and in Bosten Lake. This implies the current utilization of groundwater resources in the Yanqi Basin is unsustainable and a strong groundwater resources management is needed in this extreme arid area.