China Loosens Restrictions on Foreign Investment in Hospitals

25 Sep 2024

China is once again relaxing its policy on foreign-funded medical institutions, with several government departments announcing a pilot program to allow the establishment of wholly foreign-owned hospitals in certain regions, after several back-and-forth policy loosening and tightening attempts over past decades.

According to the new policy released Saturday by the Ministry of Commerce, National Health Commission (NHC) and the National Medical Products Administration, wholly foreign-owned hospitals will be allowed in eight cities including Beijing and Shanghai as well as the island province of Hainan. Previously, foreign investors were required to partner with Chinese entities holding at least 30% equity, according to legal experts.

The document, titled “Notice on Expanding Pilot Program for Opening the Healthcare Sector,” requires commerce, health, pharmaceutical and human genetic resources regulatory departments in the pilot areas to actively reach out to interested foreign investment companies and “steadily promote the expansion of wholly foreign-owned hospitals.”

While some industry experts believe the move is a positive signal of policy change, which will attract foreign investment in the health care market and increase the supply of high-quality services for Chinese patients, others warned that the diverging treatment of public and private hospitals in China could present a challenge for foreign firms looking to run medical institutions locally.

Specific requirements and procedures for establishing such hospitals will be released later, the notice said.

The scope of the pilot has narrowed compared to a similar 2014 program, which covered seven provincial-level regions including the areas mentioned in the latest policy as well as the entirety of Jiangsu, Fujian and Guangdong provinces. That program did not expand widely, and related policies gradually tightened.

Challenging environment

The new program could lift the shareholding restrictions that foreign-backed medical institutions face and promote diversification of medical resources in China, legal and medical experts told Caixin.

But observers will be watching what supporting measures the government rolls out for foreign-owned hospitals and how they adapt to a market dominated by public institutions.

Zhao Heng, founder of healthcare strategy consulting firm Latitude Health, believes foreign hospitals will face challenges in recruiting doctors, particularly in specialized fields where there are high thresholds and a shortage of specialists.

Although foreign-owned hospitals may offer competitive salaries and provide professional training, domestic public medical institutions have the advantages of granting officially budgeted posts and having good reputations, which could hinder private hospitals’ efforts to attract talent, Zhao said.

Another issue is the application of medical insurance, where basic health care insurance cannot reimburse the majority of the high foreign hospital fees and commercial insurance remains underdeveloped in China, resulting in limited market growth potential, according to Zhao.

Foreign-owned medical institutions also face a lack of clear regulation in terms of getting market access and are not eligible for the fiscal subsidies, tax incentives or land discounts often provided to non-profit hospitals by the government.

“If these issues aren’t resolved, simply relaxing investment policies may not have a significant impact on the market landscape,” a representative of a foreign-invested health care group who wished to stay anonymous told Caixin.

Policy shifts

China’s policies towards foreign-funded hospitals have undergone multiple shifts in past decades, after foreign investment began flowing into health care services industry in the late 1980s.

Foreign-backed hospitals were limited to non-profit or joint ventures with strict approvals. Regulations such as the 2000 Interim Measures on the Administration of Sino-Foreign Joint-Venture Medical Institutions allowed foreign involvement only through partnerships, requiring that domestic entities hold at least 30% of the venture.

In 2009, there were 214 approved foreign-funded medical institutions in China, of which just 70 were actually operating, according to a 2017 article published in China Health Policy Research, a magazine managed by the NHC, citing 2009 statistics from the Ministry of Commerce.

In 2010, policies began to loosen, culminating in 2014 when the government allowed wholly foreign-owned hospitals to be set up in select regions, including Beijing and Shanghai. However, by 2015, restrictions had returned, limiting foreign investments again to joint ventures and partnerships.

The 2017 article found the country’s regulatory system on foreign-funded medical institutions to be “inadequate and erratic,” adding that the lack of long-term and stable policies had affected the confidence of foreign investors.

Gan Hua, a professor at Sichuan University’s West China Hospital and delegate to the National People’s Congress, echoed the sentiment and noted that foreign-funded medical institutions “lack stable, continuous, predictable, and operable laws and regulations” in 2022.

“Everyone is waiting to see what the (new policy’s specific requirements) are and whether there are any special preferential policies,” the health care group representative said.