As the opening-up policy on health services in China pushes forward, the Chinese government further sets up seven pilot areas where qualified foreign investors are allowed to establish wholly-foreign-owned medical institutions. This is a big step forward since the Shanghai Pilot Free Trade Zone loosened the restrictions in this regard. It is exciting news for foreign investors who have obtained rich experiences providing health services outside of China and now have their sights on China. The following contents will provide you an outline of this opening-up policy in China.
I. Policy Retrospection
1. State Council Opinion
On September 28, 2013, the PRC State Council published the Certain Opinions of the State Council on Promoting the Development of the Health Service Industry, Guo Fa  No 40 (the "State Council Opinion"), with a goal "to progressively spread the trial scheme for qualified foreign capital to establish wholly- foreign-owned medical institutions" in China. This has PRC central government voiced its desire to open up policies on wholly-foreign-owned medical institutions, which certainly is a fundamental footstep in the process.
2. Shanghai FTZ Negative List
On September 29, 2013, the Shanghai Municipal People's Government released the Special Administrative Measures (Negative List) on Foreign Investment Access to the China (Shanghai) Pilot Free Trade Zone (2013) (the "2013 Negative List"), which specifically allows foreign investors to establish a wholly-foreign-owned medical institution in the Shanghai FTZ. However, the 2013 Negative List provides two restrictions on such medical institutions: (i) a minimum total investment of RMB 20 million (roughly US$3.3 million) is required; and (ii) the operating period of such medical institutions may not be longer than 20 years. This minimum investment requirement is a disincentive to certain foreign investors who wish to establish clinics and other smaller medical facilities to provide primary healthcare services in the Shanghai FTZ. Further, the operating period restriction dissuades investors whose financial models require longer terms to generate satisfactory returns.
On June 30, 2014, the Shanghai Municipal Government further issued a 2014 amended version of the 2013 Negative List, the "2014 Negative List". The 2014 Negative List goes a step further to lift the restrictions of foreign investment on medical institutions; both aforementioned restrictions in the 2013 Negative List have been abolished by the 2014 Negative List. As a result, more foreign investors will benefit from the additionally relaxed policies in the Shanghai FTZ.
3. MOC Press Interview
On July 4, 2014, Mr. Wang Shouwen, the Assistant Minister of Ministry of Commerce of China, accepted press interviews related to WTO's Fifth Trade Policy Review of China in Geneva, during which he indicated that the Ministry of Commerce is considering allowing the establishment of wholly-foreign-owned hospitals in seven cities, including Beijing and Shanghai, in a trial scheme. Corresponding to the spirit of the State Council Opinion, this reply hints that the PRC government is actually taking actions to spread the scheme beyond the Shanghai FTZ, and further open up China's medical service industry to overseas investors. Additionally, this is evidenced by the specific rules promulgated to support this development.
II. New Policy of Opening Up
The National Health and Family Planning Commission of China and the Ministry of Commerce of China jointly issued the Notice on Development of Work Concerning of Pilot Scheme of Establishing Wholly-Foreign-Owned Hospitals, Guo Wei Yi Han  No. 244 (the "Notice of NHFPC and MOC"), dated July 25, 2014. This Notice of NHFPC and MOC provides seven pilot provinces (cities) where wholly-foreign-owned hospitals
may be established, and instructs each of the authorities in such provinces (cities) to establish their own trial schemes based on a principle of "progressively opening up" and "keeping risks controllable". The Notice of NHFPC and MOC is summarized below.
1. Scope of Pilot Scheme
The seven pilot provinces (cities) are: Beijing, Tianjin, Shanghai, Jiangsu Province, Fujian Province, Guangdong Province and Hainan Province. As a general rule, overseas investors may establish wholly- foreign-owned hospitals in these seven provinces (cities) in accordance with the Notice of NHFPC and MOC. However, note that overseas investors may NOT establish hospitals that practice traditional Chinese medicine in the aforementioned provinces (cities) other than investors from Hong Kong, Macau and Taiwan.
2. Qualification of Foreign Investors
To be qualified to operate a wholly-foreign-owned hospital in these pilot provinces (cities), the foreign investor shall be a legal person who is able to bear responsibility independently, and shall have had direct or indirect experience with respect to investment and management of a medical institution. Furthermore, one of the following conditions shall also be met:
- The investor shall be able to provide internationally advanced medical institution management experience, management models and service models;
- The investor shall be able to provide internationally advanced medical techniques and armamentarium; or
- The investor shall be able to supplement or improve the deficiency of local medical service competence, medical service quality, techniques, funds, and medical facilities.
Compared to relevant rules in Shanghai FTZ, this Notice is silent regarding the foreign investors required years of prior experience, while the FTZ rules provide a "five-year direct experience" requirement. Note that both this Notice and the Shanghai FTZ rules require "one of three" qualified conditions to be met by the foreign investor.
3. Other Requirement of Establishment
The wholly-foreign-owned hospital to be established should also satisfy the basic national standards of Medical Institutions. The Ministry of Health issued a Medical Institution Basic Standard (For Trial Implementation) on September 2, 1994, which provides basic standards for various medical institutions, e.g. general hospitals, clinics, as well as health stations etc. It requires medical institutions to meet standards regarding basic number of impatient beds, basic departments, personnel qualification, and basic facilities and equipment corresponding to its scale. Although they are relatively outdated, these remain the national standards and must be abided by. The Notice of NHFPC and MOC further provides that, where it lacks of a national standard, it should apply the Notice of Ministry of Health on Relevant Provisions for Approval Administration on Establishment of Specialised Hospitals, Wei Yi Zheng Fa  No. 87, which offers general requirements for specialised hospitals.
Moreover, provincial health and family planning administrations as well as competent commerce departments may further establish detailed conditions and requirements for such wholly-foreign-owned hospitals based on specific circumstances in their jurisdictions.
4. Outline of Authority Approval
The authority of approval for the establishment of wholly-foreign-owned hospitals would belong to the competent provincial-level government, rather than the national government. An outline of the approval procedures are provided in the below chart.
Click here to view the table.
Following in the Shanghai FTZ's footsteps, seven provinces (cities) as pilot areas are embracing overseas investors in establishing wholly-foreign-owned hospitals, which is a good indicator that the PRC government is moving forward in its goal to open up the medical service sector in the Chinese market. In any case, such movements by PRC government will certainly offer more potential opportunities for overseas investors in the Chinese health care industry. We will continue to closely monitor its development and will pay particular attention regarding the implementation in the seven pilot provinces (cities).