GDP and industrial investment funds-added are two major factors of measuring economic development for certain countries or regions. In this paper, we use gross domestic product and industrial investment funds as original data from Qinghai Province (2005-2009), and design an improved GM (1, 1) model which is based on the traditional Gray System to analyze and forecast the overall economic growth of Qinghai Province. The improved GM (1, 1) model not only maintains the advantages of simple calculation method, but also greatly improves the traditional GM (1, 1) model to make prediction more accuracy. The experimental results show that this method using improved GM (1, 1) model is high prediction accuracy in forecasting economic growth of Qinghai province. This method is very practical, and it can provide reliable scientific basis for local government to make right directions behind economic growth and industrial development in that region.