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BEIJING -- China's central government will earmark one billion yuan (125 million U.S. dollars) to purchase medical services for 400 million urban residents in the middlewest areas in 2007.

Under the plan, government fund will be doled out to hospitals on the basis of a 3-yuan medical subsidy for each urban dweller in central areas and a 4-yuan subsidy in the west.

The money will fund low-cost medical treatment services.

Qi Chao, a senior official with the Ministry of Finance, said qualified public and private hospitals are both welcome to bid for the procurement.

The system is already being tried in Tianjin, a major city in north China, where government is purchasing services such as vaccination, the treatment of geriatric diseases and health care for handicapped people.

The Tianjin government is also footing bills for new medical equipment, personnel training, as well as water and electricity fees for hospitals to cut down the price of medical services.