Contradictory goals plague China’s pharmaceutical policy. The government wants to develop the domestic pharmaceutical industry and has used drug pricing to cross-subsidize public hospitals. Yet the government also aims to control pharmaceutical spending through price caps and profit-margin regulations to guarantee access even for poor patients. The resulting system has distorted market incentives, increased consumer cost, and financially rewarded inappropriate prescribing, thus undermining public health. Though pharmaceuticals account for about half of total healthcare expenditures in China, representing 43% of expenditure per inpatient episode and 51% of expenditure per outpatient visit, some essential medicines are unavailable or of questionable quality.