New Directions in China’s Health Sector Reform

Publication: China Brief Volume: 9 Issue: 5

scene at a Chinese hospital

The State Council of the People’s Republic of China (PRC) approved a proposal for a new round of health sector reforms (HSRs) on January 21. The policy paper, "Guiding opinions for further reforming medical and pharmaceutical system," is the blueprint for Beijing’s renewed efforts toward providing universal coverage of basic health care for all its citizens by 2020. This policy paper is scheduled for official release after the National People’s Congress, which will conclude on March 12, yet the major backbones of the reforms have been underlined in the meeting minutes of the State Council’s meeting. This is the second time that the central government issued a policy paper on HSRs. Twelve years ago, Beijing launched "The decisions on health reforms and development," this round of reforms is intended to direct the development of China’s health systems over the next decade.

Health Sector Reforms-1997

The market-oriented economic reforms in China that began in the 1970s significantly shaped Beijing’s policies toward the development of the country’s health sector. Between the mid-1980s and mid-1990s, China’s health sector experienced a rapid expansion that was largely financed by the boom in private capital. While its expansion helped address the chronic shortage of health resources in terms of finance, infrastructure and pharmaceutical, the intensive use of high technologies and concentration of health resources in urban and tertiary hospitals made health care unaffordable and inaccessible for the masses [1]. During this time period, changes in China’s health policies were tailored to accommodate economic reforms targeting growth without a long-term vision for developing the health system.

The first HSR proposal in 1997, which was initiated at a health conference chaired by the Communist Party Committee and the State Council, is the central government’s first attempt to direct health sector development from 1997 to 2010.

The 1997 HSR proposal specifically targeted the problems of rising medical cost, inefficient and inequitable health resource distribution and the low coverage of the "social health security system" (shehui yiliao baozhang tixi). Proposed policy actions include the expansion of urban employee-based health insurance; introduction of regional health resource planning; strengthening of primary health care system; and the expansion of rural “cooperative medical scheme” (CMS). These actions were designed to reconcile the “contradictions” that Chinese analysts say resulted from China’s market-oriented health care development. For instance, regional health resource planning was intended to improve the availability of health resources for primary health facilities and rural area by re-directing lopsided resource distribution; and the expansion of social health insurance schemes could have protected the people from the financial risks of illness.

Yet, the 1997 HSR proposal was not effectively implemented in practice. Except urban health insurance reform, the other intended actions did not achieve the stated objectives. Instead disparities in health resource distribution between provinces, regions and types of health care providers continue to widen, CMS did not benefit the rural population as expected, primary health facilities are still struggling to remain solvent, and the user fee continued to overwhelm individual financing for health care. The failure in implementation of the 1997 HSR proposal could be attributed to two key factors: the lack of political will and financial support.

Health Sector Reforms-2009

The 2009 HSR proposal’s main objective is to provide universal coverage of basic health care by the end of 2020. The new policy proposes major reforms in four areas: 1) public health system, 2) medical care delivery system, 3) health security system, and 4) pharmaceutical system.

Under the new policy, the central government will completely subsidize the delivery of an “essential public health package” (jiben gonggong weisheng fuwu) that includes core public health services. The package will be standardized for all citizens across the country but local governments can add public health services to this package based on the local economic situation. In clinical delivery system, while the role of state-owned hospitals will be strengthened by increasing government support, expansion of the non-state hospital sector will be encouraged to enter the market. Under the new policy the central government will continue to expand "social health insurances" (shehui yiliao baoxian) with the aim of 90 percent coverage of rural and urban residents, respectively, by the end of 2011. Rural migrants and other vulnerable or “at risk” population will be the target of the government’s coverage expansion. The establishment of an "essential medicine system" (jiben yaowu zhidu) hinges on reforms in the pharmaceutical system. The central government has even proposed to formulate an essential drug list and the production and utilization of essential drugs will be insured by the government’s financial support. Primary health providers will not be allowed to prescribe drugs outside the essential drug list.

There are eight strategies on the table to support these proposed reforms in the health system. These strategies include a public-dominated financing mechanism for public health care, clearly defined responsibilities of central and local governments for supporting medical care delivery system, provider performance-based payment systems, capacity-building of human resources, and priorities for public funding. Those strategies cover the five key areas of the health system: health financing, health care delivery, human resources and governance.

Short-term Actions and Financial Supports

There are five key areas of reforms over the next three years. Those five areas include: 1) improving the social health security system for urban employee and resident health insurance schemes, rural CMS, and medical assistance programs; 2) establishing an essential medicines system; 3) strengthening capacities of primary health care facilities; 4) increasing provisions of public health care to reduce the gaps in coverage of public health services between regions and population groups; and 5) reforming financing mechanism of public hospitals by reducing the hospital’s dependence on drug revenues.

The reform proposal is underlined by two basic principles for allocating the health budget: equity and efficiency. To ensure equity in budget allocation, the government’s health budget will be directed to public health care, poor area and vulnerable population. To ensure efficiency in budget allocation, performance-based payment systems will be introduced to guarantee that the money can be used for health care provision and health improvement.

A total of 850 billion RMB ($125 billion) is budgeted from central and local governments over the next three years for supporting the five reforms. Even though the precise targets for the investments and how the budget will be allocated needs to be further developed, from the central government’s plans in building rural CMS and urban resident-based health insurance scheme, the government will increase subsides to premiums from 80 RMB ($12) per insured in 2009 to 120 RMB ($18) per insured in 2010 (People’s Daily, January 22). This budget will need a total of 104 billion RMB ($15.3 billion) for the 850 million population covered by the two schemes in 2010, accounting for 36.8 percent of the total government budget allocated for 2010, if the 850 billion RMB will be equally allocated throughout the three years [2]. The remaining budget, about 179 billion RMB ($26.3 billion) a year, will be used for other reform activities including investments in infrastructures of primary health facilities, delivery of essential public health services, and support for manufacturing and distributing essential drugs. Up to now, a detailed plan for allocating the budget on the aforementioned activities has not been made.

Opportunities and Challenges to Success

HSRs require strong political, institutional and financial support, especially in China where the government owns the resources to direct change. The 1997 HSR was not carried out as expected mainly due to the absence of political, institutional and financial support. A growing awareness of the importance of health care for socio-economic development by the political leaders in Beijing, concerns about access to health care by the general public, and an increasing capacity for financing health services are the main driving forces behind the increased support for HSRs over the years.

In terms of political support, health care is stated in the reform proposal as a fundamental factor in determining the quality of life, building of a fair society, and realization of a people-centered development model for the country. Another measure of its political support is reflected in the statement that all level of political leadership should put health care as a priority on the party’s agenda. The Chinese government completed the restructuring of its agencies in mid-2008. The authority of the food and drug administration has been merged into the Ministry of Health in order to improve coordination between relevant agencies. Further institutional arrangements were proposed in the 2009 HSRs, including the establishment of a leadership committee within the State of Council for coordinating actions between HSR-related ministries, including Ministries of Health and Finance and the National Development and Reform Commission.

There is cause for optimism about the potential success of these new reforms. Yet the process is far from simple. Even though political support is promised, there is always the danger that political leaders will not put health care as a major agenda item. China’s GDP-centered development model will not disappear overnight, particularly when a new system for evaluating the performance of political leaders is not yet available. The type of reforms that are needed will require a re-alignment of vested interests, which will challenge the embedded institutional arrangements within the system. The potential losers in this set of reforms, for instance some tertiary hospitals and pharmaceutical manufacturers, will undauntedly try to foil any reduction in the government’s budget toward their projects. It may be difficult for Ministries of Health and Finance, representing different interest groups, to reach an agreement on specific reforms. In addition, the promise of increasing the government’s health budget will be affected by the China’s economic condition.

There are a number of operational challenges to the proposed reforms. The first challenge lies in the complexity of developing a national package of public health services. While local governments in wealthy areas can add public health services into the national package, the poor areas cannot, thus making the provisions of equal access to public health care between regions and provinces problematic. Another operational challenge facing these reforms are found in the formulation of an "essential medicine system." Since the new system will cause a redistribution of benefits between interest groups, including different types of pharmaceutical manufacturers and health providers, there will be many challenges in the process  of developing an essential drug list.


The 2009 HSR opens the door for the development of a new health system in China by focusing on equity improvements, increasing government leadership and financing, establishing a universal health insurance scheme, and ensuring the provision of public health services. Implementations of the reforms need to address a number of challenges existing in the political, institutional, financial and operational aspects of HSRs. Even if the promised resources are made available to undertake the reforms, how the resources are reasonably allocated and executed is critical for the reforms success.

The current economic crisis can have both positive and negative impacts on the new HSR initiative. The government may see HSRs as conducive for supporting economic recovery and invest more in the health sector. On the other hand, there is a risk that the government will not be able to mobilize adequate finances for the HSRs under the current economic crisis, because most of the budget for the reforms will come from the government’s revenues. Moreover, if the central government determines that investments in the health sector would yield less return for economic recovery than other programs, then the promised budgets could be reduced and HSRs could once again fall on the policy back burner.  


1.Center for Health Statistics and Information, Ministry of Health. Report on the National Health Services Survey of China, 2003. Beijing: Union Medical University, 2004
2. This is estimated by the author according to the State Council’s budget plan for HSR.