Drought has exerted significant impacts on socio-economic systems in China, yet accurately estimating its direct economic loss remains challenging. The main constraint lies in establishing a robust relationship between drought events and associated losses, compounded by insufficient loss data. To address this gap, we developed a set of annual gridded Gross Domestic Product (GDP) and applied to a process-based sigmoidal type of drought loss function. The pioneering effort produced the first gridded dataset of drought-induced economic losses for 1991 to 2016, offering valuable insights for the previously unrecorded period from 1991 to 2001. The sigmoidal curve fits well in most provinces, with R2 values exceeding 0.5, and higher accuracy observed before 2010, indicating a certain level of the model's credibility before 2002. The estimated losses ranged from 3.91 billion CNY in 1991 to 22.02 billion CNY in 1999, thereby filling the statistical gap and providing critical reference information for 1991 to 2001 in China. Spatial analysis revealed a pronounced pattern of elevated losses per unit area in southern and eastern China, aligns closely with GDP distribution and demarcated by the Hu Line. This correlation underscores the significant influence of economic development on drought losses. This study also highlights the necessity of integrating policy measures into drought loss assessments to account for the impacts of adaptation and mitigation strategies. This integration is essential for enhancing the accuracy of drought-related hazards assessments and facilitating more strategic adaptation and mitigation initiatives.