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Next year the system will be introduced among all the city's four million rural population.
It is expected that by 2010, the basics of a rural healthcare system will be in place in all rural areas in China.
In addition to the financial benefits, the growing number of patients has led to the demand for better medical facilities and staff in rural areas.
In Shandong, the provincial government has announced an investment of more than 320 million yuan (US$40 million) in the next two years to construct or renovate 360 major township health centres, aiming to establish a complete rural healthcare system.
At the same time, the province is sending high-level professionals from major hospitals in big cities to work in backward rural areas.
Qingdao, another pilot city in the province, has in the past five years sent more than 4,000 urban medical professionals to work in more than 800 of its small towns and rural villages, the local health department said.
By the end of 2005, these doctors had performed more than 10,200 surgeries for rural patients, cutting operation fees by some 1,000 yuan (US$125) per case.
In the meantime, experienced professionals are helping promote hygiene knowledge and train staff in local hospitals. More than 8,000 medical workers in rural hospitals have undergone training.
All medical personnel in township and rural clinics must now have professional certification, and local health departments are carrying out regular inspections.
"As we optimize the medical structure, more resources are flowing into rural areas, balancing the overall medical resources distribution. These efforts have greatly improved efficiency and most importantly have benefited rural people and brought prosperity to the healthcare sector," said Bao Wenhui, vice-director of Shandong Provincial Health Department.