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Reforming China’s Rural Health System
areas. Consider the case of TB. Counties have relied largely on their own resources for TB programs (this is now changing), including the matching funds for the World Bank–financed DOTS program that spearheaded the treatment regimen in China. In Shangdong, where the implementation of TB programs has been studied, poorer counties—despite having a higher prevalence of tuberculosis—spent less per capita on TB control than richer ones (Meng et al. 2004). This meant a smaller sum from the World Bank project because of the matching requirement. Unsurprisingly, case detection rates were lower in these poorer counties (Zhan, Wang et al. 2004). The geographic inequalities in public health spending are to some degree reduced by earmarked transfers for public health. But such transfers are limited. With the exception of periodic investment programs by central government, most earmarked transfers are “demand-driven”— higher levels of government determine the amounts transferred based on specific requests by local governments and their own fiscal capacity. These transactions typically require matching funds by local government. Earmarked transfers for capital investments in institutions with public health responsibilities are one example of transfers that require matching funds. There are also earmarked transfers related to specific epidemic diseases or public health programs such as EPI, which tend to be allocated according to the number of patients to be treated and quotas for preventive care providers, treatment costs, and administrative costs. Some of these transfers also require local matching funds. Although recent public health investments have resulted in a large injection of funds from the central and provincial levels, very little evidence is available on the actual importance of earmarked fiscal transfers in that process. However, if the findings from the county case studies are indicative, the role of upper-level government in financing public health activities is very limited and confined to a few specific areas. For the two case-study counties, central and provincial government together account for only 6 percent of total spending on prevention and public health, compared to 34 and 35 percent, respectively, by county government (figure 7.3). In both counties, central and provincial funds are used to finance immunization programs, HIV/AIDS prevention and treatment, and other communicable disease programs (figure 7.4). Earmarked transfers are not the only mechanism for reducing geographical disparities in government spending on public health. Central and provincial governments also use tax-sharing arrangements and general fiscal transfers to ensure that local government has adequate financial resources. General fiscal transfers have been growing in importance in