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As a result of China's transition to a socialist market economy, its rural health services have undergone many of the changes commonly associated with health sector reform. These have included a decreased reliance on state funding, decentralisation of public health services, increased autonomy of health facilities, increased freedom of movement of health workers, and decreased political control. These changes have been associated with growing inequality in access to health services, increases in the cost of medical care, and the deterioration of preventive programmes in some poor areas. This paper argues that the government's strategy for addressing these problems has overemphasised the identification of new sources of revenue and has paid inadequate attention to factors that influence provider behaviour. The strategy also does not address contextual issues such as public sector employment practices …