The Chinese government  has recently issued two new policy documents on foreign investment in China’s healthcare sector:  The Circular regarding Launching the Pilot Project to Establish the Wholly Foreign Owned Hospital (国家卫生和计划生育委员会、商务部关于开展设立外资独资医院试点工作的通知) and the Announcement to Encourage the Foreign Investor to Establish for Profit Elderly Care Institutions to Provide Services for the Aged (商务部、民政部关于鼓励外国投资者在华设立营利性养老机构从事养老服务的公告). These openings should facilitate further foreign investment in the Chinese healthcare sector.  Faced with an aging population and an elderly care support network significantly based on family care, the Chinese government is enhancing reform in the healthcare sector and encouraging foreign enterprises with experience in this sector to invest and share know-how to assist in developing more effective healthcare services.

Wholly Foreign Owned Hospitals

On 25 July 2014, China National Health and Family Planning Commission and Ministry of Commerce jointly issued the Circular regarding Launching the Pilot Project to Establish the Wholly Foreign Owned Hospital (the “Circular”) (国家卫生和计划生育委员会、商务部关于开展设立外资独资医院试点工作的通知). This Circular, which is applicable to 3 municipalities (including Beijing, Tianjin and Shanghai) and 4 provinces (Jiangsu, Fujian, Guangdong and Hainan),  permit foreign investors to wholly own hospitals in the designated jurisdictions.  These wholly foreign owned hospitals can be set up by new establishment or by acquisition. Foreign investment in hospitals in the other Chinese provinces must still be in form of a Joint Venture (“JV”) in accordance with Interim Measures for the Administration of Sino-foreign Equity Joint Venture and Cooperative Joint Venture Medical Institutions (“Measures”) (中外合资、合作医疗机构管理暂行办法)as well as its 2 supplementary provisions and the other relevant regulations.  Traditional Chinese medicine hospitals have not been included in the pilot project and they are only open to investors from Hong Kong, Macao and Taiwan.

The required qualifications of a foreign investor in a wholly foreign owned  hospital investment are  similar to those required  for investment in a JV medical institution under Measures.  The foreign investor shall be a legal person with the capability of independently undertaking civil liabilities, have direct or indirect experience in investing in and managing medical and healthcare services and shall satisfy one of the following requirements:

  1. be capable of providing internationally advanced managerial concepts,      management models or service models for medical institutions;
  2. be capable of providing internationally advanced medical technology and   equipment;
  3. be able to supplement or improve medical service capability, medical         technology, funding and equipment in the jurisdiction.

A wholly foreign owned hospital shall comply with the basic standards of the medical institution enacted by the State or provided for in the relevant regulations. The Circular also delegates the approval authority for wholly foreign owned hospitals to the provincial authorities.  The health and family planning administrational authority and commerce competent authority in the provincial level in charge of approval and/or supervision are authorized to release their own pilot implementation policies.

However, the Circular does not explicitly specify requirements for the establishment of a wholly foreign owned hospital, such as the required total investment amount and the term of existence. The relevant policies have yet to be released. Consequently, the requirements, application documents and registration procedures required under the Measures, the Medical Institution Administration Regulations, the Detailed Implementing Rules for the Medical Institution Administration Regulations and other relevant laws and regulations, including provincial policies, should be complied with to obtain the competent authority’s approval for establishment of a wholly foreign owned hospital.

Elderly Care Services

On 2 December 2014, Ministry of Commerce and Ministry of Civil Affairs jointly released the Announcement to Encourage the Foreign Investor to Establish for Profit Elderly Care Institutions to Provide Services for the Aged ( the “Announcement”) (商务部、民政部关于鼓励外国投资者在华设立营利性养老机构从事养老服务的公告). In accordance with the Announcement, a foreign investor can invest in elderly care institutions (“ECI”) by establishing either a WFOE or a JV. The Announcement is applicable on a nationwide basis and it takes precedence over any previous  applicable regulations, including those applicable  to the investors from Hong Kong, Macao and Taiwan. The establishment procedure shall be carried out in the following sequential steps: approval shall be obtained from the provincial-level commercial authority, registration shall be undertaken with the Administration for Industry and Commerce(“AIC”) and after the AIC registration has been obtained, a Permit for the Establishment of Elderly Care Institution (the “Permit”) shall be sought from the local civil administrational authority, together with other required  certificates. Without the aforesaid approval and Permit, the foreign invested ECI (either as a JV or as a WFOE) shall be forbidden form providing any services for the aged, or charging any fee from the aged and accommodating the aged.

A foreign invested ECI enjoys tax benefits and administrative charge exemptions.  A for-profit foreign invested ECI shall enjoy the same preferential tax benefits and administrative charge exemptions as for-profit domestic ECIs.

The Announcement contains specific provisions to avoid the establishment of real estate development projects under the guise of elderly care facilities. An ECI may not be converted into a foreign invested real estate development company through modification of its land use purpose and construction conditions, and a for-profit foreign invested ECI shall be prohibited from operating any disguised real estate projects using elderly care add-ons.

Conclusion

The reform of the Chinese healthcare sector and its opening to foreign investment is still in progress and will occur gradually.  Nevertheless, it is expected that foreign investors will be allowed to set up more types of medical institutions as a wholly foreign owned enterprises in the future. Details on taxation, medical insurance, and medical supervision related to wholly foreign owned medical institutions are still pending and will need to be addressed so that they do not become a barrier to foreign investment.