The interest in national terrestrial ecosystem carbon budgets has been increasing because the Kyoto Protocol has included some terrestrial carbon sinks in a legally binding framework for controlling greenhouse gases emissions. Accurate quantification of the terrestrial carbon sink must account the interannual variations associated with climate variability and change. This study used a process-based biogeochemical model and a remote sensing-based production efficiency model to estimate the variations in net primary production (NPP), soil heterotrophic respiration (HR), and net ecosystem production (NEP) caused by climate variability and atmospheric CO2 increases in China during the period 1981–2000. The results show that China's terrestrial NPP varied between 2.86 and 3.37 Gt C yr−1 with a growth rate of 0.32% year−1 and HR varied between 2.89 and 3.21 Gt C yr−1 with a growth rate of 0.40% year−1 in the period 1981–1998. Whereas the increases in HR were related mainly to warming, the increases in NPP were attributed to increases in precipitation and atmospheric CO2. Net ecosystem production (NEP) varied between −0.32 and 0.25 Gt C yr−1 with a mean value of 0.07 Gt C yr−1, leading to carbon accumulation of 0.79 Gt in vegetation and 0.43 Gt in soils during the period. To the interannual variations in NEP changes in NPP contributed more than HR in arid northern China but less in moist southern China. NEP had no a statistically significant trend, but the mean annual NEP for the 1990s was lower than for the 1980s as the increases in NEP in southern China were offset by the decreases in northern China. These estimates indicate that China's terrestrial ecosystems were taking up carbon but the capacity was undermined by the ongoing climate change. The estimated NEP related to climate variation and atmospheric CO2 increases may account for from 40 to 80% to the total terrestrial carbon sink in China.