Many low and middle‐income countries have decentralized their public health services in an effort to improve their equity, efficiency and effectiveness. This paper presents a case study of a poor rural county in China that devolved finance and management of basic health services to townships, the lowest level of government. It finds little evidence that townships mobilized additional financial resources or that they were able to address major management problems effectively. It cautions against unrealistically rapid decentralization of health services in poor rural areas. Copyright © 2000 John Wiley & Sons, Ltd.