Air pollution -- from indoor sources such as burning coal, wood and crop residue as well as outdoor sources from industries, roads and construction -- is widely to blame for 1.3 million premature deaths a year from respiratory disease, it said.

Outdoor air pollution cost a typical Chinese city around 10 percent of its gross domestic product in 2000 because of the toll in death and sickness, says the London-based medical journal.

The bill is predicted to range from eight to 16 percent by 2020, depending on future technology and policies.

As for water pollution, only half of China's 200 major rivers and less than a quarter of its 28 major lakes and reservoirs are deemed suitable for use as drinking water after treatment, according to the paper.

Access to piped water has risen from 30 percent of the population in 1985 to 77 percent in 2007, including nearly 94 percent coverage in urban areas.

The success has helped cut the incidence of water-related infectious diseases among urban Chinese.

However, water quality in rural areas is continuing to decline, and the schistosome parasite, a water-borne parasite capable of inflicting liver and intestinal damage, is starting to re-emerge in some areas.

Another problem is industrial discharge and contamination of water tables and rivers by fertilisers and pesticides.

The report praises China for some initiatives, including the fight against arsenic and mercury pollution, but says more remains to be done.

"A greater emphasis on regulatory enforcement is needed, to include substantial fines and criminal penalties," along with a watchdog to evaluate whether regulatory actions work, it says.

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