China Loosens Restrictions on Foreign Investment in Hospitals

China is easing restrictions on foreign-funded medical institutions by launching a pilot program that allows the establishment of wholly foreign-owned hospitals in specific regions, reversing a history of alternating policies over the past decades [para. 1]. This new policy, unveiled by the Ministry of Commerce, National Health Commission (NHC), and the National Medical Products Administration, permits wholly foreign-owned hospitals in eight cities, including Beijing and Shanghai, and the island province of Hainan. Previously, foreign investors had to partner with Chinese entities holding at least 30% equity [para. 2].

The announcement, detailed in the document titled “Notice on Expanding Pilot Program for Opening the Healthcare Sector,” mandates regulatory departments in the pilot areas to actively engage with foreign investment companies and progressively promote the expansion of wholly foreign-owned hospitals [para. 3]. While the move signals a positive policy shift that may attract foreign investment and enhance the availability of high-quality health services, experts caution that the disparity in treatment between public and private hospitals in China could pose challenges for foreign entities [para. 4]. Specific guidelines and procedures for establishing these hospitals will be disclosed later [para. 5].

The latest pilot program has a more limited scope compared to a similar initiative in 2014, which included seven provincial regions, encompassing Jiangsu, Fujian, and Guangdong provinces. That program did not significantly expand, and corresponding policies became progressively stricter [para. 6].

The new program aims to lift shareholding restrictions on foreign medical institutions, thus promoting the diversification of medical resources in China. However, there is keen interest in what supporting measures will accompany the new policy, given the market's domination by public institutions [para. 7]. Zhao Heng, founder of the healthcare strategy firm Latitude Health, points out that foreign hospitals will likely struggle to recruit doctors, especially specialists, as domestic public hospitals offer officially budgeted positions and have strong reputations, which private hospitals cannot easily match [para. 9].

Additionally, the challenges extend to medical insurance where basic health care plans do not cover the majority of fees charged by foreign hospitals, and commercial insurance remains underdeveloped in China. This significantly limits market growth potential [para. 10]. Other barriers include unclear regulations for market access and a lack of eligibility for fiscal subsidies, tax incentives, or land discounts often granted to non-profit hospitals [para. 11].

China's policies regarding foreign-funded hospitals have experienced multiple changes since the late 1980s when foreign investment in health care services began [para. 13]. Initial regulations limited foreign hospitals to non-profit or joint venture status with strict approvals, as outlined in the 2000 Interim Measures on the Administration of Sino-Foreign Joint-Venture Medical Institutions, which required at least 30% domestic equity in partnerships [para. 14]. By 2009, only 70 out of 214 approved foreign-funded medical institutions were operational [para. 15]. Policies started to relax in 2010, leading to the establishment of wholly foreign-owned hospitals in select regions by 2014, but restrictions reemerged by 2015 [para. 17].

A 2017 article criticized the regulatory system for being inadequate and erratic, undermining foreign investors' confidence [para. 18]. Echoing this view, in 2022, Gan Hua, a professor at Sichuan University’s West China Hospital, noted that foreign-funded medical institutions face a lack of stable, predictable regulations [para. 20]. Stakeholders are currently anticipating the specifics of the new policy and any preferential measures that may be implemented [para. 21].

For additional information, contact reporters Kelly Wang (jingzhewang@caixin.com) and editors Jonathan Breen (jonathanbreen@caixin.com) and Lu Zhenhua (zhenhualu@caixin.com) [para. 22].