After three Chinese government ministries issued a notice to this end in September 2024, it took only two months for the first large investment project by a non-Chinese investor to follow: a Singaporean developer signed an agreement in November 2024 to establish a wholly foreign-owned hospital in Guangdong Province, with an investment exceeding half a billion euros.
For much of the history of the People’s Republic of China, foreign investment in hospitals and other medical institutions was prohibited. While in the 2010’s China began to slowly open the market to investors from non-mainland areas, operating hospitals was still largely limited to investors from Hong Kong, Macao, or Taiwan, or Sino-foreign joint ventures in which the participation of foreign parties was capped.
Thus, the recent regulatory changes inevitably prompt the question: Is the China’s hospital market entering a new era of foreign investment?
A History of Gradual Opening
For most of its history, the healthcare sector in the People’s Republic of China was almost entirely state-owned. Private healthcare—and particularly foreign investment in medical institutions—was virtually non-existent.
In the late 1990s and early 2000s, the Chinese government began slowly opening the hospital and medical institution market, mostly as trials in certain regions. This development mostly, however, differentiated between foreign operators in general and operators from Hong Kong, Macao, and Taiwan.
The first sign of an opening occurred in 1997, when China’s former Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the former Ministry of Health jointly issued the “Supplementary Provisions on the Establishment of Foreign-Invested Medical Institutions.” The Provisions clearly stated that foreign investors could not operate medical institutions in China independently but were allowed an equity participation of up to 50% in the operating entities. In 2000, these two ministries further allowed up to 70% foreign participation in Chinese-foreign joint ventures operating medical institutions under the “Provisional Measures for the Administration of Medical Institutions in the Form of Sino-Foreign Equity or Contractual Joint Venture” (Provisional Measures). This threshold essentially continued to exist for more than 20 years, until recently.
The first complete opening of hospitals and medical institutions to investors from outside Chinese mainland was then reserved for operators from Hong Kong, Macao, and Taiwan in the early 2010s. Under the Closer Economic Partnership Arrangement (CEPA) and the Cross-Strait Economic Cooperation Framework Agreement (ECFA), established in 2009 and 2011, service providers from Hong Kong, Macao, or Taiwan were permitted to set up wholly-owned hospitals, but only in specific regions such as Shanghai, Fujian Province, Guangdong Province, Hainan Province, and Chongqing. This policy led to the establishment of well-known international hospitals, such as the Shanghai Jiahui International Hospital.
In 2013 and 2014, it then appeared that the complete opening of the hospital and medical institution market in China would soon also extend to other investors. First, in 2013, with the establishment of Shanghai’s Free Trade Zone (FTZ), China’s State Council issued the “Circular on the Overall Program of China (Shanghai) Pilot Free Trade Zone,” which declared that wholly foreign-owned medical institutions would be allowed in the Shanghai FTZ. Just one year later, this policy was geographically further expanded by MOFTEC and the former Health Ministry through the “Notice on the Pilot Work of Establishing Wholly Foreign-Owned Hospitals.” It allowed wholly foreign-owned hospitals in additional regions, including Beijing, and Guangdong. These policies resulted in the establishment of facilities such as the Shanghai Towako Hospital, a gynecology hospital fully funded by a Japanese investor.
But this seemingly full opening lasted only a few years. In 2015, China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) issued an updated “Catalogue of Industries for Guiding Foreign Investment,” in which medical institutions were reclassified as a restricted area for foreign investment. This decision was further confirmed later by the 2017 version of the “Catalogue for the Guidance of Foreign-Invested Industries,” which made it clear that the joint-venture participation model was the only legal form of investment in medical institutions for foreign investors.
In our practical experience, the authorities in most regions have continued to primarily apply the Provisional Measures from 2000, meaning that foreign participation in a joint venture operating a hospital or other medical institution must not exceed 70%. A relatively recent example of this is the Perennial Tianjin Hospital, established in 2023 and invested in by Singapore's Perennial Holdings.
New Possibilities for Foreign Investors
September 2024 marks a new beginning for allowing foreign investment in Chinese hospitals. The MOFCOM, the National Health Commission (NHC), and the National Medical Products Administration jointly released the “Notice on Carrying Out Pilot Programs to Expand the Opening-Up in the Healthcare Sector” (the Notice). This Notice consists of two parts: The first part addresses the field of biotechnology, stating that foreign-invested enterprises shall now be allowed to engage in the development and application of human stem cells, gene diagnosis, and treatment technologies in certain regions of China. The second part proposes permitting the establishment of wholly foreign-owned hospitals in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and the entire island of Hainan.
The first results of the Notice followed rather quickly: just two months later, the aforementioned Singaporean developer, Perennial, signed an agreement with the Baiyun District Government of Guangzhou. The project involves a CNY 5 billion (approximately EUR 655.5 million) investment to develop a 1.18-square-kilometer international healthcare and wellness center in Guangzhou.
By November 29, 2024, China’s NHC, the MOFCOM, the National Administration of Traditional Chinese Medicine, and the National Disease Control and Prevention Administration jointly published the “Pilot Work Plan for Expanding the Opening-Up of the Field of Wholly-Owned Hospitals” (the Pilot Work Plan) , further announcing the specific details.
In the Pilot Work Plan, the four authorities clarified certain qualification requirements for foreign investors applying to establish a wholly foreign-owned hospital. Among others, these investors must provide internationally advanced hospital management concepts and service models, medical technology and equipment at an international leading level, and address deficiencies in local medical service capacity, technology, and facilities.
The Pilot Work Plan also specified which categories of hospitals may or may not be fully opened to foreign investors. General hospitals, specialist hospitals, and rehabilitation hospitals, all of tier 3, may be operated by wholly foreign-owned entities. However, psychiatric hospitals, infectious disease hospitals, blood disease hospitals, integrated traditional Chinese and Western medicine hospitals, and minority nationality medical hospitals may not be established by foreign investors. Additionally, the Notice had already prohibited wholly foreign-owned hospitals from offering traditional Chinese medicine services or acquiring public hospitals through mergers and acquisitions.
Furthermore, the Pilot Work Plan set restrictions on employing foreign personnel. While foreign doctors and technical professionals, as well as doctors from Hong Kong, Macao, and Taiwan, are allowed for short-term practice, at least 50% of the management and health personnel must be Chinese.
The Pilot Work Plan also outlined the high-level procedures for establishing wholly foreign-owned hospitals. Approval and registration must be submitted to provincial health administrative departments after initial local and municipal reviews. If the conditions are met, the provincial health administrative department shall issue the “Approval Certificate for the Establishment of Medical Institutions” and the “Medical Institution Practice License.” The procedures, application materials, and deadlines for the approval of establishment and practice registration shall be implemented in accordance with the “Interim Measures for the Administration of Sino-foreign Joint Venture and Cooperative Medical Institutions,” and the “Notice of the Ministry of Health on Adjusting the Approval Authority of Sino-foreign Joint Venture and Cooperative Medical Institutions.”
A Promising Frontier for Investment
The Notice and the Pilot Work Plan present exciting opportunities for foreign investors seeking to tap into China’s healthcare market without requiring a foreign-Chinese joint venture. At present, the number of foreign-invested medical institutions remains relatively small, estimated to be around 300. Most of these institutions are clinics rather than hospitals, and foreign investors are often from other parts of Asia rather than Europe or the US. Allowing wholly foreign-owned hospitals is expected to improve the quality of medical services in China by increasing competition between domestic and foreign-invested hospitals, ultimately providing patients with more choices.
Furthermore, foreign-invested hospitals will face challenges, such as the limited size of the foreign population in China with international insurance coverage, which is unlikely to grow significantly in the next years. Access to the Chinese medical insurance system will therefore play a crucial role in the success of foreign-invested hospitals.
Despite these challenges, the factors driving the opening of China’s hospital market create a promising outlook. These drivers include an aging population, a recent increase in the retirement age, a growing middle class, and rising expectations among Chinese citizens for higher-quality healthcare. These trends are likely to persist, making the hospital market an appealing sector for foreign investors.
As the winds of policy shift, it is foreseeable that foreign investors will "rush to land" on the new blue ocean of the Chinese market. For investors seeking opportunities, the German Chamber of Commerce in Greater China is ready to join hands with you on this journey, offering comprehensive market entry consulting, partner matching, and other international business solutions and support services.
(This article originally appeared in the Winter 2024 issue of the German Chamber's business Journal 'Ticker')