China's $125 bln health reform holds challenges

$125 billion plan to extend coverage to 200 million uninsured

* Drug mark-ups to be regulated

* International firms still on the sidelines

By Lucy Hornby and Langi Chiang

BEIJING (Reuters) - China's new, 850 billion yuan ($124.3 billion) health care reform plan aims to bring coverage to 200 million uninsured Chinese, but it still relies heavily on spending by cash-strapped local governments and may disappoint international companies eager to enter the Chinese market.

The cost of health care is one of the biggest concerns for poor or even middle-income Chinese, whose savings can easily be wiped out if a family member falls seriously ill.

Better health coverage could also help create a potentially huge market attractive to foreign pharmaceutical and health service providers, but China's health plan still regulates drug prices and limits participation by international insurers.

"There are still over 200 million people that are not covered by the nation's basic medical insurance system. That will be the priority for work in the next three years," Hu Xiaoyi, vice minister of human resources and social security, told a press conference on Wednesday.

Cautious Chinese saving in case of illness is one of the factors keeping domestic consumption relatively low, complicating Beijing's efforts to ride out the global financial crisis.