This paper examines China's health care from a system perspective and draws some lessons for less developed nations. A decade ago, Chinese macro-health policy shifted its health care financing and delivery toward a free market system. It encouraged all levels of health facilities to rely on user fees to support their operations. However, China continued its administered prices and hospitals continued to be operated by the government. These financing, pricing and organizational policies were not coordinated. The author found these uncoordinated policies created serious dissonance in the system. Irrational prices distorted medical practices which resulted in overuse of drugs and high technology tests. Market-based financing created more unequal access to health care between the rich and poor. Public control of hospitals and poor management caused inefficiency, waste and poor quality of care. The disarray of the Chinese health system, however, had not caused a measurable decline in health status of the Chinese people. One explanation was that the government had maintained its level of funding (per capita) for public health and prevention. Another possible explanation was that rapid rising income in China had improved nutrition, clean water and education which offset any adverse impacts of poorer medical services to the low-income populations. Nonetheless, the Chinese experience showed that its increasing expenditure per person for health care through user fees and insurance had not produced commensurate improvement in health status. China'a experience holds several lessons for less developed nations. First, there is a close linkage between financing, price and organization of health care. Uncoordinated policies could exacerbate inequity and inefficiency in health care.(ABSTRACT TRUNCATED AT 250 WORDS)