On the supply of China's healthcare resources in a decentralized healthcare system

• The determinants of healthcare resource supply are examined.
• The supply of healthcare resources is inversely related to the degree of decentralization.
• A spatial econometric technique is used.
• Evidence is found for presence of strategic substitutes (in healthcare spending) across city governments.

The structure of China's current governance bears prominent features of fiscal decentralization. The supply of healthcare resources in China has clearly witnessed slower growth in the last two decades during which the fiscal decentralization process has taken place. Using China's provincial panel data, we examine the determinants of healthcare resource supply while paying particular attention to the role of fiscal decentralization. We find that the supply of healthcare resources is inversely related to the degree of decentralization, which, using spatial econometrics, is attributed to the presence of strategic substitutes in healthcare spending across city governments. These findings have important implications for policy makers in making fiscal arrangements among different government tiers.