Applicability of the standardized precipitation evapotranspiration index (SPEI) is examined on the basis of monthly precipitation and monthly-mean temperature data recorded by 160 stations in China from 1951 to 2010. Results indicate that the SPEI at multiple time scales can be used to examine drought in areas with annual precipitation greater than 200 mm. In other regions, the index is effective for time scales longer than 12 months. In addition, the lack of precipitation and evapotranspiration during winter months results in reduced confidence of SPEI values when applying 1-, 3-, and 6-month SPEIs in arid climatic regimes with annual precipitation less than 200 mm. Moreover, time series of SPEI, standardized precipitation index (SPI), and H index were compared for two observatories with different climate characteristics located in various regions of China. Of the three indices, only the SPEI was able to identify an increase in drought severity associated with higher water demand as a result of evapotranspiration under global warming. Further, the SPEI was able to determine the beginning and end of drought events. Therefore, SPEI carries an advantage when used for drought analysis and monitoring.