Following decentralization, township hospitals (TH) have been set during the 90?s at the heart of the Chinese health care supply in rural area. We have collected data from a sample of 21 TH in Shandong province to analyze the determinants of their activities and assess their efficiency during the period 1986-2000. Among other results, and controlling for other factors, we find that local income per capita in the TH area of activity as well as the TH attractiveness have positive effects on the number of outpatients and inpatients treated. The price of care had a negative effect and existing medical insurance schemes have no significant effect. The vertical integration of a part of the village health stations activities within TH management seems to have slowed down the activity of the TH. The efficiency of TH has improved with a certain convergence in our sample. Financial constraints, human resources issues and institutional factors related to the regulation of hospitals by the supervision body and its stewardship behaviour played important roles in this overall positive evolution.