In a move that will liberalize the healthcare sector in China, the Ministry of Commerce announced last week that, for the first time, foreign investors will be authorized to set up wholly foreign owned medical institutions in seven cities across the country. Previously, foreign investment in hospitals was limited to a joint venture structure with a requirement that the Chinese party holds no less than 30 percent equity in the joint venture hospital. As such, few foreign invested hospitals were established in China under the old regime. Now, overseas investors will be permitted to establish foreign funded hospitals through mergers and acquisitions in Beijing, Tianjin, Shanghai and Jiangsu, Fujian, Guangdong and Hainan provinces.

Approvals for foreign-owned hospitals will be overseen by provincial governments, the Ministry of Commerce said, adding that only investors from Macau, Taiwan and Hong Kong can practice traditional Chinese medicine.

This is a significant milestone in the healthcare sector because this pilot scheme increases private participation in what was formerly an exclusively public run domain. Notably however, in July of this year, German healthcare and medical product provider Artemed Group signed a framework agreement, spearheading China’s inaugural wholly foreign funded hospital in Shanghai’s Free Trade Zone.

The initiative comes on the back of a shortage of medical resources, a slew of conflicts between patients and doctors and a fragmented drug distribution and retail market. Strategically as well, the government is trying shore up the economy in one of the country’s fastest growing sectors, generate a surge in the number of jobs and pave the way for increased competition in a sphere that has traditionally been stringently regulated.

Whilst the rules have yet to be implemented, the issues emanating from this potentially landscape changing announcement include regulatory approvals (at the local and national levels) licensing, construction, employment and labor issues as well as insurance.