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Setting up wholly foreign owned hospitals in China?
1 March 2015

Background

Healthcare services are in strong demand in China due to its rapid economic growth and increasing people’s wealth in the last decades. However, it is only recently that foreign investors can establish wholly foreign owned hospitals in China and still in only a very small number of hospitals in China. Since the end of 2011, investors from Hong Kong, Macau and Taiwan have been allowed to establish wholly owned hospitals in designated cities / provinces. By January 2014, that was extended to the whole country. To date, there are two wholly foreign owned hospitals in China – one in Shanghai invested by Taiwan investors and one in Shenzhen set up by Hong Kong investors.

Since July 2014, all foreign investors are also allowed to set up wholly foreign owned hospitals in the Shanghai Free Trade Zone (which was officially launched in September 2013, integrating the 4 bonded zones in the district of Pudong). In the same month, a group of German investors entered into a framework agreement for the establishment of a hospital in the Zone. This will be the first wholly foreign owned hospital invested by foreign investors from outside Hong Kong, Macau and Taiwan.

Other than specified above, foreign investors can only set up joint ventures with Chinese partners to operate hospitals.

Pilot Scheme of Establishing Wholly Foreign-owned Hospitals

On 27 August 2014, the National Health and Family Planning Commission and the Ministry of Commerce jointly issued a Notice on the Pilot Scheme of Establishing Wholly Foreign-owned Hospitals (“Notice”) effective on 25 July 2014.

Pursuant to the Notice, a pilot programme now operates in 7 cities and provinces including Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Guangdong and Hainan where foreign investors can establish wholly foreign owned hospitals if certain requirements are fulfilled. The Notice further allows a wholly foreign owned hospital to be established by way of either new investment or acquisition.

Requirements

According to the Notice, the foreign investor should be a legal person capable of independently assuming civil liabilities, have direct or indirect experience in medical and healthcare service investment and management and meet any of the following requirements :-

1. capable of providing internationally advanced hospital management concepts, management models and service models;

2. capable of providing leading international medical technologies and equipment; or

3. capable of supplementing or improving local deficiencies in medical service capabilities, medical technology, capital and medical facilities.

The above requirements show that China is looking to attract medical talents with international skills. In addition, the wholly foreign owned hospital has to meet the basic medical institutional standards set by the country. It must also comply with the setting up procedures and requirements in the Administrative Regulations on Medical Institutions and its implementing rules, as well as the Administrative Measures for Foreign Investment in Commercial Sectors.

Under the Notice, the approval authority has been delegated to the provincial level. The healthcare and family planning administrative departments and competent commerce departments at the provincial level will now formulate plans for the establishment of wholly foreign owned hospitals in their respective province (or city). It is expected that detailed implementing rules and policies will be published in each designated province / city soon.

It should be noted that after the Notice, except for investors from Hong Kong, Macau and Taiwan, it is still not permissible for foreign investors to establish Chinese medicine hospitals.

Going Forward

The Notice serves as an introduction to the pilot programme to encourage and invite foreign investors to set up hospitals in China. It has not addressed certain practical issues such as minimum registered capital required. It also remains to be seen how other issues will be dealt with in the future. For instance, barrier to private healthcare insurance means that mainly expatriates of multinational corporations will benefit from such private healthcare services. Restrictions to foreign doctors’ practising in China may still limit the supply of qualified doctors for such private hospitals. Further, the implementing rules and policies of different provinces / cities may have inconsistent practices, causing confusion to potential investors and making investment decisions difficult. Hence, one should expect a transitional period for all new policies such as this one on private healthcare services.

Conclusion

Generally speaking, the Notice should encourage more foreign investments in the healthcare services industry in China and that should bring in new / advanced medical services, technologies and experience to China. The Notice should therefore be welcomed by foreign investors as it is a big step forward in opening up China’s private healthcare sector.

If you have any questions on the above or other issues on doing business in Mainland China, experienced lawyers in our China Business Department will be happy to assist you.

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