Drawing on the 1998 China national health services survey data, this study estimated the poverty impact of two smoking-related expenses: excessive medical spending attributable to smoking and direct spending on cigarettes. The excessive medical spending attributable to smoking is estimated using a regression model of medical expenditure with smoking status (current smoker, former smoker, never smoker) as part of the explanatory variables, controlling for people's demographic and socioeconomic characteristics. The poverty impact is measured by the changes in the poverty head count, after smoking-related expenses are subtracted from income. We found that the excessive medical spending attributable to smoking may have caused the poverty rate to increase by 1.5% for the urban population and by 0.7% for the rural population. To a greater magnitude, the poverty headcount in urban and rural areas increased by 6.4% and 1.9%, respectively, due to the direct household spending on cigarettes. Combined, the excessive medical spending attributable to smoking and consumption spending on cigarettes are estimated to be responsible for impoverishing 30.5 million urban residents and 23.7 million rural residents in China. Smoking related expenses pushed a significant proportion of low-income families into poverty in China. Therefore, reducing the smoking rate appears to be not only a public health strategy, but also a poverty reduction strategy.