OBJECTIVES: Since the early 1980s, decentralization has reemerged as a valued political and economic goal in most developing countries. China’s health care system is also in the process of decentralization, local governments take more responsibilities of health sector, accompanied by the diminution of public role in health financing especially after the fiscal reform in 1994. This research looks at the health outcome (both the level and gradient) during the period 1991-2007 to identify the effects of these policy changes on health outcomes in China. METHODS: we borrow the micro Grossman health production model using province-level pooled cross-section and time-series data during the period 1991-2007. We first investigates the “overall” and “partial” effect of income on health, and then focus on the policy effects. Life expectancy, infant mortality, mortality, and maternal mortality are examined as health variables (level, gradient and convergence). Medical care, public health, socioeconomic, environmental factors as well as institutional variables are considered in the production function. RESULTS: The results are coincident with theoretical expectation i.e. economic growth alone does not promote health in typical developing countries, but some channels like its impact on public health do, and also the system does matter. The decentralization of government responsibilities and reduction of public role are significant for the fall of mortality and infant mortality and both significantly affect the sigma and beta convergence of health variables. CONCLUSIONS: Economic development is important support for health development, but economic growth will not naturally improve health especially for the government investment on health. Rational incentives for the government is essential for health development.