In China, medical care is one of the few industries that is still dominantly owned and

managed by government. In 2001, privately owned for-profit hospitals accounted

for only less than 1% of total hospitals; the number of beds, doctors, and nurses

in private hospitals accounted for 1.4, 9.4, and 0.8%, respectively. As it did for

other state-owned enterprises, the economic reform brought market competition to

state hospitals. Under the current policy, hospitals must be financially independent;

funding from the government is fixed and accounts for less than 20% of total revenue

for most hospitals. Market competition has forced some hospitals into financial

insolvency. Competition has also induced behaviors leading to inefficient resource

allocation from societal perspective.