OBJECTIVES: To scientifically estimate the direct and indirect economic costs of smoking on the economy of China, the world’s largest producer and consumer of tobacco. METHODS:  Estimation of the direct (medical expenditure) costs of smoking involved a literature search of locally and internationally published data on 28 diseases closely related to smoking in China, and meta-analysis of the results to obtain the prevalence attributable risk (PAR) of each individual disease due to smoking. The indirect (non-medical) cost of smoking was calculated from five indicators (deaths caused by smoking, smoking-related diseases, passive smoking, smoking-related fires, cost of pollution to the tobacco industry) using data published by the Chinese government. RESULTS: Based on the available data, the direct cost of smoking was RMB99.9b, comprising 1.17% of GDP and the indirect cost of smoking was RMB437.9b, comprising 0.49% of GDP in 2000; the direct cost of smoking was RMB1665.6b, comprising 0.91% of GDP and the indirect cost of smoking was RMB861.1b, comprising 0.47% of GDP in 2005. The total cost to the economy of China was 1.61% of GDP in 2000 and 1.38% of GDP in 2005. CONCLUSIONS:This comprehensive study of smoking in China reveals broad economic consequences of smoking that extend beyond the anticipation of the government and the public. Continuous technological development and increasing health awareness in China have made the cost of treating the same disease higher today than ever before. It will be critical for the Chinese government to develop and implement more effective smoking control policies.