In 1978, China decided to reform its economy and since then has gradually opened up to the world. The economy has grown rapidly at an average of 9.8% per year from 1978 to 1994. Medical expenditure, especially for drugs, has grown even more rapidly. The increase in medical expenditure can be attributed to changing disease patterns, a higher proportion of older people in the population and fee-for-service incentives for hospitals. Due to the changing economic system and higher cost of health care, the Chinese government has reformed its health care system, including its health and drug policy. The drug policy reform has led to more comprehensive policy elements, including registration, production, distribution, utilization and administration. As a part of drug policy reform, the drug distribution network has also been changed, from a centrally controlled supply system (push system) to a market-oriented demand system (pull system). Hospitals can now purchase drugs directly from drug companies, factories and retailers, leading to increased price competition. Patients have easier access to drugs as more drugs are available on the market. At the same time, this has also entailed negative effects. The old drug administrative system is not suitable for the new drug distribution network. It is easy for people to get drugs on the market and this can lead to overuse and misuse. Marketing factors have influenced drug distribution so strongly that there is a risk of fake or low quality drugs being distributed. The government has taken some measures to fight these negative effects. This paper describes the drug policy reform in China, particularly the distribution of drugs to health care facilities.