PIP: The evolving Chinese cooperative medical system is examined in an effort to gain some valuable knowledge for both the 3rd world and developed countries. The changes occurring in the Chinese health system are the unintended consequences of economic reforms that have exerted direct and indirect effects on the organization, financing, and delivery of health care. As China does not publish complete or current information on its health care system, the discussion draws on limited published information. China, an agrarian nation, has a population of 1 billion with 80% of the people living in rural areas. A gross national product of US$300/person in 1981 places China in the bottom 1/3 of the developing countries. In 1981 China had 2 hospital beds/1000 people. There are 516,000 senior doctors trained in Western medicine and 290,000 senior doctors trained in traditional Chinese medicine, yielding a ratio of 0.8 senior doctors/1000 people. China also has 436,000 assistant doctors in Western medicine, but most of the primary health care is provided by "barefoot doctors." Hospital beds and health personnel are unevenly distributed between the urban and rural areas. Health personnel, health stations, and hospitals are organized on a 3-tier system. In 1980 China inaugurated major economic reforms in agricultural production and public financing. Alterations in the rural economic structure brought about major changes in the Chinese cooperative medical system. The most influential reform provided financial incentives to peasants, who now receive direct rewards for individual output. Because of economic reform, collective financing and public support for the cooperative medical system diminished. The proportion of the rural population protected by the system has been reduced by 50%. The rapid, continuing decline in the cooperative medical system has affected several important elements of health care: the number of barefoot doctors per capita has diminished; most barefoot doctors forego continuing education; there has been an increase in the financial burden borne by peasants; and hospitals are experiencing financial problems. With the collapse of cooperative health care financing, many barefoot doctors have created private practices, charging patients on a fee for service basis and selling drugs to them. In some brigades, the peasants have organized voluntary health insurance programs, but the peasants face problems in organizing voluntary insurance programs. 1 consequence of the rising income of peasants is their demand for higher quality medical care. The Chinese experience illustrates the effects of economic structure on the supply of health personnel, the demand for services, and the organization and financing of health care. Economic incentives affected the supply of health personnel. Another lesson to be learned is the need to establish a universal, compulsory financial system for health care. The Chinese experience also demonstrates that the pricing structure influences the demand and need for insurance.