China's expenditure on healthcare has increased dramatically over the last 20 years, and three broad trends are seen in the associated health outcomes. First, limited improvements have been achieved to aggregate high-level health outcomes, e.g. infant mortality. Second, development of large and widening health inequalities associated with disparate wealth between provinces and a rural-urban divide. Finally, the burden of disease is shifting from predominantly communicable diseases to chronic diseases. Reasons for the limited gains from investment in healthcare are identified as: (1) increased out-of-pocket expenditure including a high proportion of catastrophic expenditure; (2) a geographical imbalance in healthcare spending, focusing on secondary and tertiary hospital care and greater expenditure on urban centres compared with rural centres; and (3) the commercialization of healthcare without adequate attention to cost control, which has led to escalation of prices and decreased efficiency. Recently, the Chinese Government has initiated widespread reform. Three key policy responses are to establish rural health insurance, partly funded by the Government (the New Rural Co-operative Medical Care System); to develop community health centres; and to aspire to universal basic healthcare coverage by 2020 (Healthy China 2020). Copyright © 2010 The Royal Society for Public Health. Published by Elsevier Ltd. All rights reserved.