BEIJING, Jan 7 (Reuters) - China's health care system is struggling to keep pace with the country's blistering 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, since when it has largely abandoned what was once an all-encompassing cradle-to-grave welfare system, causing huge hardships for millions left behind by rapid development.

Many hospitals have resorted to charging exorbitant premiums for medical care and prescriptions. Deregulation of the health care 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 the lack of access combined with corruption has made the issue a source of social unrest.

Health Minister Chen Zhu, speaking at a forum in Beijing, said the task of exploring reform of the health system was very arduous.

"There is still a significant gap between the Party and State Council's requirements and people's new expectations," Chen said in comments carried on the government Web site.

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

But he added that many infectious and chronic diseases still threatened the people.

"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 the ignoring of the vast and poor countryside.

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, editing by Nick Macfie and Roger Crabb) $1=7.268 Yuan

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