This paper reviews the changing health situation in China, which has shown remarkable improvement in the 50 years since the founding of the People's Republic of China (PRC) in 1949. At first sight this improving health situation follows the classical epidemiological transition model. Just three decades ago health in China was characterised by high rates of infectious disease and early mortality (diseases of poverty) in a mainly peasant society. More recently infectious disease rates have decreased, with corresponding and extended morbidity and mortality associated with an aging population in a rapidly urbanising society. This process has given rise to new health problems, including chronic and degenerative diseases (diseases of affluence). Nonetheless, while there is some validity in the application of the epidemiological transition concept, further analysis demonstrates that China faces a new epidemiological phase, characterised by increasing life expectancy and diseases of affluence coupled with the emergence and re-emergence of infectious diseases. We demonstrate that China's state policy plays a major role in defining the parameters of health in a Chinese context. We conclude that, today, China is faced with a new set of health issues, including the impact of smoking, hypertension, the health effects of environmental pollution and the rise of HIV/AIDS; however, state policy remains vital to the health of China's vast population. The challenge for policy is to maintain health reform whilst tackling the problems associated with rapid urbanisation, widening social and spatial inequalities and the emergence of HIV/AIDS and other infectious diseases.