**_With respect to resource allocation, this study finds that it remains essential to further increase and equalize government contribution to essential public service delivery across localities and population groups also within cities_** .  As discussed above, with the equalizing support and ultimate guarantee of the central government, the provincial governments need to take the lead in ensuring that all localities and population groups within province are able to utilize essential public services of good quality and according to the needs.

**_A faster progress is most urgently needed with respect to the essential health package, provider payment mechanism and contracting in the health sector_** .  In their effort to improve the performance of service providers and minimize information asymmetries, the municipal governments could further explore the option of introducing an active purchasing function into the health system.  Effective active purchasing, in turn, involves a well designed provider payment mechanism, contracting (that is competition among – public, private or other – service providers for contracts rather than individual patients, accompanied by an effective engagement of the purchasers of care in monitoring performance of the providers of care) and an appropriate service benefit package.<sup>24</sup> Furthermore, the recent policy effort to expand population coverage of health insurance schemes in urban areas (and of the New Cooperative Medical System in rural areas) needs to be supported by additional public resources toward essential public health functions, public health services and essential clinical services for the poor and vulnerable.  Using the insurance schemes for channeling some of the resources is appropriate, but insurance schemes must be required to emphasize essential outpatient and inpatient services – such as those included in the basic mother and child healthcare package<sup>25</sup> – in their service benefit packages and gradually reduce the copayment levels in line with the additional funding contributions.  Public goods, such as public health safety and public health programs need to be appropriately prioritized and funded directly from the government budget to contract providers, along with the enforcement of appropriate national and provincial standards.  It is encouraging that the Government Health System Reform Plan unveiled in 2008 is pursuing such funding and institutional improvements.

**_In education, the government could usefully expand its commitment to compulsory nineyear education and provide more resources toward expanding early childhood development and senior high school education_** .  Analyses have shown that both upper secondary education and early childhood development are very important for developing high-skill labor force and sustaining China’s rapid economic development.<sup>26</sup>

> 24 Good examples of local initiatives include Tieling in Liaoning, and Jinan and Qingdao in Shandong.  In Tieling, the government allocates capitation-based resources (RMB10 per person) to purchase 18 types of public health services from qualified service provider – public or private – based on competition for contracts at the community level.  In Jinan and Qingdao of Shandong Province, government allocates capitation–based resources to purchase three types of service package, namely, essential public health service package, extended package, and locality-specific package. The essential service package serves as the minimum benchmark package in the province, and city districts choose among the three packages to contract service providers. Tieling, Jinan and Qingdao have all strengthened the provider performance evaluation systems. In this context, Qingdao also actively collects citizens’ feedback regarding the providers’ performance.

> 25 WHO/UNICEF/UNFPA(2006), _Joint Review of the Maternal and Child Survival Strategy in China_ outlines the basic content of essential services for mothers and children.

> 26 Ebbeck et al (1996), The Importance of Pre-School Education in P.R.China, _International Journal of Early Years Education_ [Vol 4, 1996], Li et al (2008), Value of Pre-School Education in China, _Modern Education Forum Journal_

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