OBJECTIVES: n the 1980s, China launched market-oriented reforms. Public hospitals were encouraged to make their own incomes with the aim of mobilizing medical workers and improving hospital efficiency. Less government funding resulted in deficits for public health institutions, which forced hospitals to generate their own revenue by aggressively selling drugs, especially expensive drugs. There are challenges in poor drug access, drug procurement, rising drug costs and financial risk. In March 2009, China finally unveiled its health care reform plan. The Chinese government announced it will institute an essential medicine system within three years to drive down prescription costs and quell public complaints of limited accessibility of medicines. This study is to describe the strategies to build the essential medicine system at the provincial level in China and challenges associated with promoting it. METHODS: Key actors, their power, views and interactions will be assessed using appropriate qualitative methods as these are best suited to understanding complexity, richness of material and motivations of actors, and using a policy analysis to know the key governance issues and underlying relationships affecting its success or failure. RESULTS: The system includes a list of essential medicines that would be produced and distributed under government control and supervision, and it should be used at all public health facilities at grassroots levels from 2009. The central government will set reference prices, based on which, provincial governments set the purchase prices of the drugs in their jurisdiction. Public medical and health facilities at the grassroots levels should sell the drugs at the purchase prices. These generally involve the transfer for a fixed fee from the local MOH to the health service center/post in exchange for the removal of retail mark up, which couldn’t offset the profit of selling drugs. CONCLUSIONS: The provider incentive is very crucial for building an essential medicine system, which is dependent upon the reimbursement system.