(Adds figures on life expectancy, infant mortality)

BEIJING, Jan 7 (Reuters) - China's health care system is struggling to keep pace with the country's economic growth and faces a major challenge in looking after its 1.3 billion people, the health minister said on Monday.

China embarked on massive economic reforms three decades ago and has since abandoned a cradle-to-grave welfare system, causing hardships for millions left behind by rapid development.

Health Minister Chen Zhu, speaking at a forum in Beijing, said: "There is still a significant gap between the Party and State Council's requirements and people's new expectations."

Many hospitals have resorted to charging premiums for medical care and prescriptions and deregulation of the health industry has brought a rash of scandals involving overcharging, bogus drugs and malpractice.

The costs of seeing a doctor or staying in hospital are out of reach for many in the world's fourth-largest economy and this lack of access combined with corruption has made the issue a source of social unrest.

But Chen said the Olympic Games, which Beijing hosts in August, would spur the expansion of public health.

"The 2008 Beijing Olympic Games provides a great opportunity for the country's public health development," he said.

"Beijing will join hands with co-host cities and its neighbouring provinces to strengthen disease-related information monitoring and make risk evaluations on the possible public health accidents."

Rehearsals would be staged to prepare officials for such accidents, the report said.

China has been pouring money into the health sector in an effort to save the failing system. Chen, in comments carried on the government Web site, noted health expenditure last year increased to 63.1 billion yuan ($8.7 billion), up 277 percent from 2006.

The Xinhua news agency said the average life expectancy in China rose to 73 years in 2005 from 71.4 in 2000. It also cited a Health Ministry report saying the infant mortality rate fell to 15.3 per 1,000 babies in 2007 from 25.5 per 1,000 in 2003.

But Chen added many infectious and chronic diseases were still a threat.

"Public medical and health agencies' operating mechanisms are not adapted to the needs of the public, the improvement of health personnel's ability is still weak and the development of the health insurance system is lagging," Chen said.

Chen said last week that market forces must not come to dominate China's health service, as they lead only to inequality and cause the vast and poor countryside to be ignored.

Instead, the government must spend more money on health and take the lead in guiding reform, Chen and ministry Communist Party boss Gao Qiang wrote in the ideological journal "Qiu Shi", which means "Seeking Truth". (Reporting by Beijing Newsroom and Lindsay Beck; Additional reporting by Jason Subler)

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