It is generally acknowledged that the petroleum industry plays an important role in China's national economic and social development. The direct, indirect, and induced impacts of China's petroleum industry are analyzed in this study by using the Input Output approach. The study also considers the main challenges that China's economy might face in the future. The research results suggest the following: (1) The total economic impacts coefficients on output, given each unit of final demands change in extraction of petroleum and processing of petroleum, are 1.9180 and 3.2747 respectively, and the corresponding economic impacts coefficients on GDP are 1.0872 and 0.9001 respectively; (2) Extraction of petroleum has a more direct impact on GDP, while processing of petroleum has a greater effect on the total output; (3) Extraction of petroleum's total economic impacts coefficients on both output and GDP have remained stable in recent years after a period of long decline; processing of petroleum's total economic impacts coefficient on output is steadily increasing; (4) Import uncertainty, the likelihood of rising oil prices, and net oil exports caused by items manufactured with petroleum products (i.e. "Made in China" goods) are the main challenges the petroleum industry will cause for China's overall economy. (C) 2011 Elsevier Ltd. All rights reserved.