MWE China Law offices’ Shanghai-based partner David Dai said: “It’s a good signal that this sector has really opened up, despite the technical hurdles of national and lower-level liberalisation.”
Shanghai Landseed International became the first wholly Taiwan-funded hospital to open its doors on the mainland when it opened in Shanghai on June 26.
The company intends to cater more for local Chinese mainland residents, and its founder and president Victor Chang was quoted in the China Daily saying: “We have sensed that residents on the mainland, especially those in first-tier cities such as Shanghai, Guangzhou and Beijing, now have a big demand for high-end medical services.”
Dai’s colleague, Molly Qin, agreed that there is an increasing demand for private hospitals. “Multinationals in China want to pay for commercial insurance for their employees, many of whom are domestic citizens and will go to these foreign-invested private institutions.”
Joint ventures are the only option open to foreign investors wishing to invest in medical institutions. However, when the updated Foreign Investment Industrial Guidance Catalogue (外 商投资产业指导目录) came out in 2011, the 30% minimum equity interest permitted to be held by Chinese investors was removed.
Dai said: “In Chengdu, foreigners can set up joint ventures with up to 90% of the total equity.” But Chengdu is a rare example, he added, as other provinces have yet to catch up with national-level legislation and are continuing to impose the 70% maximum under previous legislation.
Despite clear signs from the Ministry of Health and the Ministry of Commerce that wholly foreign-owned enterprises will be allowed to set up medical institutions, there is still no legal framework expressly allowing or governing this.
“The timeline is uncertain,” said Dai. “There are many political and cultural issues to overcome, but the general direction is clear and WFOEs will come sooner or later.”
Hong Kong and Macau service providers receive special treatment under the Closer Economic Partnership Agreement (CEPA), which allows them to operate medical institutions in capital cities of all provinces as well as municipalities directly under the central government.
Taiwan service providers also receive special treatment, although the geographic scope for investors is limited to Shanghai, Fujian, Jiangsu, Guangdong and Hainan provinces under an Economic Cooperation Agreement (ECA).
Dai says that foreign investors from outside Hong Kong and Macau can still enjoy the benefits of the CEPA. “We are advising multinational clients to acquire an institution in one of these locations first, so they can take advantage of these polices when coming to the mainland,” he said.
There is a one year transition period though, which means foreign investors acquiring medical institutions in Hong Kong or Macau will need to wait one year before expanding their operations on to the mainland.
Setting up a medial institution is not easy. In addition to the long and complicated approval process, one of the major difficulties is hiring qualified doctors. Even though private institutions can offer higher salaries, public hospitals offer academic training and academic positions.
There is also competition, as foreign-invested institutions will strictly adhere to international compliance standards. This is costly and puts them in a difficult position compared to public or domestically run private intuitions.
While there are many issues facing foreign investors looking to enter this sector, there is certainly the demand for improved medical services. Dai said: “This is a huge social problem and advancements need to be made in this sector.”
At a meeting this week, Beijing Health Bureau deputy director Lei Haichao added: “There will be a lot of room for private hospitals in the future.”
The July/August issue of China Law & Practice also has a feature article on foreign investment in healthcare.
By David Tring
All change for healthcare
Foreign investment in healthcare opens