On November 13, 2013, the Shanghai Municipal Government issued the Tentative Measures on the Administration of Foreign Owned Medical Institutions in China (Shanghai) Pilot Free Trade Zone [Hu-Fu-Ban-Fa [2013] No.63] (“Measures”). According to the Measures, a foreign investor, who has engaged in medical institution investment or management for 5 years or more, may, upon the approval by the relevant local government authorities, set up a wholly foreign owned medical institution (“Medical WOFE”) in the Shanghai Pilot Free Trade Zone (“Shanghai FTZ”). Also, the Measures might open up an investment opportunity for foreign capital to enter the nursing home market in China.

  1. Evolution of Foreign Investment Regulations in Medical Institution Sector in China

In 2000, the Ministry of Health and former Ministry of Foreign Trade and Economic Co-operation jointly issued the Tentative Measures on the Administration of Sino-Foreign Equity and Cooperative Joint Venture Medical Institutions (“2000 Measures”). The 2000 Measures allowed a foreign share or equity up to 70% within an equity or corporative joint venture (“JV”), but strictly prohibited investment by any means of WOFE in the medical institution sector in China.

In 2010, the National Development and Reform Commission, Ministry of Health and other ministries jointly issued the Opinions on Further Encouraging and Guiding the Establishment of Medical Institutions by Social Capital [Circular No. 58] (“2010 Opinions”). The opinions adjusted the establishment of medical institutions by overseas capital as the permitted foreign investment projects, and canceled the restriction on the equity portion of overseas capital. Therefore, foreign investors were allowed to set up Medical WOFEs subject to the approvals by the Ministry of Health and Ministry of Commerce. Meanwhile, the examination and approval of JV medical institutions was put at hand of provincial-level health departments and commercial departments. Until then, the medical institution sector is fully open for foreign investors.

In 2011, the Foreign Investment Industrial Guidance Catalogue (“2011 Investment Catalogue”) issued by the National Development and Reform Commission and Ministry of Commerce, removed the foreign investment in medical institutions from restricted catalogue.

  1. Medical WOFEs in the Shanghai FTZ

Although the relevant foreign investment regulations have already removed the restriction on the equity portion of overseas capital in the medical institution sector, in practice, due to lack of the relevant implementing guidelines, a Medical WOFE has been rarely seen in China. With the issuance of the Measures for the Shanghai FTZ, more specific guidance could be followed in guiding foreign investors to set up a Medical WOFE within the Shanghai FTZ. The following are our observations of the Measures:

  • Understanding of Medical Institutions

Although the Measures give a fair definition to “Wholly Foreign Owned Medical Institutions”, it is still not clear that what kind of medical institutions are specifically encompassed by the Measures. Based upon the Measures on the Administration of Medical Institutions in Shanghai (2010 Edition), “medical institution” means an entity that engages in the practice of medical services, including hospital, sanatorium, maternal and child health care facility, disease control and prevention facility, out-patient facility, clinic, nursing home, public health clinic, infirmary, health care facility, emergency center, center for clinical laboratory center. The term “hospital” thereunder covers general hospital, traditional Chinese medicine (TCM) hospital, hospital specialized in integrative medicine (combination of TCM and western medicine, specialized hospital, rehabilitation hospital, district hospital and township health center. The medical institutions under the Measures are supposed to be consistent with such definition.

  • Threshold for Qualified Foreign Investors

In line with the 2000 Measures, the new Measures set up a similar entry threshold for foreign investment. According to the Measures, a foreign investor applying for setting up a Medical WOFE in the Shanghai FTZ must be an independent legal entity who has engaged in the medical institution investment or management for 5 years or more, and in the same time, must satisfy one of the following conditions:

  1. the applicant may provide internationally advanced experiences and models in the management of medical institutions and the relevant services; or
  2. the applicant may provide internationally advanced medical technologies and equipment; or
  3. the applicant may supplement or improve local medical service capacity and quality, medical technologies, funds and facilities.

In comparison with the 2000 Measures, the new Measures set up a higher bar for qualified foreign investors by requesting minimum 5 years of experience in the medical institution management or investment. The 2000 Measures do not have such restriction.

  • Requirements for Medical WOFEs

The Medical WOFE in the Shanghai FTZ is required to be an independent legal entity with the minimum investment amount of RMB 20 million. On the business license, the duration of the WOFE is fixed at 20 years.

  • One Stop Application Process

Different from the 2010 Opinions, the authority to approve the Medical WOFE in the Shanghai FTZ is lowered to the local government level under the Measures. The one stop application process is adopted for the relevant paperwork submission. Specifically, a foreign investor may submit its application and all support documentation to the branch office of the Shanghai Industry and Commerce Administration Bureau located in the Shanghai FTZ (“FTZ AIC”). If all paperwork is set for review, the FTZ AIC will coordinate with the local health department and the Administration Committee of the Shanghai FTZ to evaluate and determine whether to approve the application within 40 days. Once approved, the FTZ AIC will deliver to the applicant all official documents together, including the Approval for Establishment of Medical Institution, Certificate of Approval for Establishment of Foreign Invested Enterprises and as well as Business License.

  • Foreign Invested Nursing Home with Diagnosis and Treatment Functions

The 2011 Investment Catalogue has placed the investment in service institutions for the elderly, disabled and children into encouraged catalogue, which, in theory, allows foreign investment access to the senior care industry. However, in practice, foreign invested nursing homes for senior citizens (especially retirement homes without diagnosis and treatment functions) are rarely approved in China for such institutions are usually organized and operated by the local civil affair administration bureaus.

However, in fact, a nursing home with diagnosis and treatment functions could be taken as medical institution, therefore, a foreign investor may seek the application of the Measures to set up an a Medical WOFE intended for the elderly. In this line of pursuit, foreign investment might be allowed an access to the senior care services in China.