Behind the neatly landscaped front lawn on the outskirts of Beijing are the children Chinese parents don't want or can't afford. Beside the door to each room at the New Hope Foundation medical foster home is a sign listing names, ages and conditions. One child came here with congenital heart disease. Another with cataracts in both eyes. They are young – some still unable to walk – and, like the overwhelming majority of China's orphans, they suffer disabilities.

A decade ago, China's orphanages were filled with healthy girls, a situation that reflected a national one-child policy and a cultural preference for boys. Now Chinese authorities estimate that fully 98 per cent of abandoned children have disabilities. As the once-draconian rules limiting couples to one child are being phased out, parents are giving up these children because they simply can't afford their care in a country whose social safety nets remain poorly constructed and incomplete.

They are the new face of China's vexing social challenges. The past 35 years have seen the country undergo a stunning economic transformation, but only in recent years has Beijing begun to pour its new-found wealth into the well-being of its least advantaged – and broadened its attention from the construction of superhighways to the hiring of welfare workers. Still, for its most vulnerable, in particular its children, the gap between China and more developed nations remains large.

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That may be nowhere more clear than in the systems built to handle the country's abandoned babies – systems whose failings were vividly illuminated this week.

In recent years, in an effort to offer a more compassionate option for parents who might otherwise leave infants on roadsides, China opened 25 so-called baby hatches: safe places attached to orphanages where children can be deposited and, a few minutes later, retrieved. But a single orphanage in Guangzhou, deep in southern China, was overwhelmed with 262 children since opening on Jan. 28 and had to shut down. Most of the kids were disabled; nearly one in 10 died.

The closing underlined some of the deep flaws in China's current child welfare system. The very existence of baby hatches is an echo of practices "from the 18th and 19th century in the developed world," said Dale Rutstein, chief of communications with Unicef in China. Western nations don't tend to have orphanages out of a desire to avoid institutionalizing children.

In China, the past few years have seen a sweeping campaign to build and renovate 463 orphanages; a campaign to build another 500 new buildings starts this year. China says it has 576,000 orphans in total, roughly 100,000 of them in the full-time care of the state. (Outside groups peg the total overall number nearer a million.)

At the same time, numbers of orphans are up, a problem not solved by more buildings. "More orphanages means more baby hatches, which means more abandonment," Mr. Rutstein said. In China, he added, "huge, huge areas of social service policy are way behind." The orphanages, for example, have few standards of care – and what standards do exist go unenforced.

The Chinese government acknowledges the system is imperfect. "The concern for children's welfare from top to bottom has been enhanced. However, this system is just being constructed, and it's far from good. So we have a lot of work to do," said Xu Jianzhong, the deputy head of the department of social welfare and charity promotion at the Ministry of Civil Affairs, in an interview.

Still, change is under way. In five provinces, 120 villages have experimented with a form of "barefoot social worker" model that, advocates hope, will serve as a kind of precursor to a modern system of case management for children. Unicef is working closely with Chinese authorities and is optimistic about what's happening.

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Mr. Xu says without a complete social welfare system, the country has little choice but to keep institutionalizing children for now. But, he says, China is reaching for something different.

"We want to stop child abandonment, starting with the underlying reasons for this behaviour," he said.

The changes have already been striking, says Joyce Hill, who with her husband founded New Hope Foundation in 2002. Their children come from the orphanage system, where in years past dying boys and girls might be "hidden in some dark room, three or four to a crib." The new buildings have "palliative care units, and they're open and they have glass windows. It's a really bright place for the children to be," she said. Those children may suffer such serious ailments that they will still die from, she said, but they are "loved and fed and warm."

Her husband, Robin, remembers the times he was racked by sobs at what he saw in Chinese orphanages. Today, he said, "I'm really optimistic about the future. Give it 10 years time and I don't think we'll be needed." He paused. "It might be 15 years. But it's heading in that direction. There's a complete change in attitude towards these kids."