By Peter Lu, Partner, McDermott Will & Emery
Key Takeaways
- A recent announcement signals a relaxation of restrictions on foreign investment in Chinese healthcare.
- China will allow wholly foreign-owned hospitals in major cities.
- Foreign investors will be permitted to offer stem cell and gene therapies via a pilot program.
- Detailed requirements and procedures have not been released yet, so investors will need to monitor for any developments.
- China’s biosecurity remains a focus with strict laws and regulations.
- Chinese healthcare remains heavily regulated, so it will be crucial for foreign investors to develop a clear, strategic approach.
With China’s potential for economic development set against an aging population, its demand for medical services is growing.
Partner such demand with the decline in foreign direct investment in China and it is no surprise that the announcement that China will allow greater foreign capital into its health and medical care sectors has garnered significant attention.
A joint circular released by China’s Ministry of Commerce and National Health Commission and the National Medical Products Administration in October 2024 signals a relaxation of China’s long-standing restrictions on foreign investment in healthcare.
The key components were twofold, announcing that China will allow wholly foreign-owned hospitals in several major cities, including Beijing and Shanghai, and permit foreign enterprises to engage in biotechnology, particularly to offer human stem cell and gene therapy services in pilot free-trade zones.
These programs are clear signals of China’s intention to bring back foreign investment and stabilize growth.
The announcement comes less than two months after China’s leadership pledged to further open the market and after Vice Premier He Lifeng vowed to expand international cooperation.
At the 2024 China International Fair for Investment and Trade, Lifeng promised to build a new high-level economic system, saying, “Foreign investment is an important part of China’s economy and an important force in China’s modernization drive.”
WHOLLY FOREIGN-OWNED HOSPITALS
Despite China’s 2014 pilots for wholly foreign-owned hospitals, foreign investment has been limited to joint ventures involving established hospitals rather than sole ownership.
With the joint circular, wholly foreign-owned hospitals can now be opened in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, and Shenzhen, as well as in the southern island province of Hainan.
In addition to representing a significant easing up of China’s restrictive policies on foreign investment in healthcare, the joint circular aims to facilitate the registration, listing, and production of related products, which, once registered and approved, can be used nationwide.
Wholly foreign-owned hospitals are poised to introduce international medical technologies, talent, nursing models, service concepts, and management practices and are appealing to foreign investors across the globe.
Commentators have noted that the joint circular has a wider scope of “opening up” than in the past, with the term “wholly foreign-owned” regarded as a breakthrough change to allow more places to benefit from foreign-funded medical resources.
Peter Lu
The joint circular not only assists China in further allowing foreign investment but promotes the in-depth implementation of the Healthy China strategy.
Additionally, it presents an opportunity for China to build a more flexible, incisive, and efficient medial service system and, while these policy changes are currently limited to pilot regions, the demand for medical services within China may mean further prohibitions are lifted.
This move also presents an opportunity to improve the overall medical environment in China and enhance convenience for foreigners seeking medical treatment in the country.
The detailed requirements and procedures for wholly foreign-owned hospitals and foreign investment have yet to be released.
However, we know foreign investors will not be allowed to acquire public hospitals or run businesses relating to Chinese medicine.
While the joint circular did not provide any information on what the regulations may contain, previous regulations regarding the Shanghai Free-Trade Zone pilot indicate that guidelines may include stipulations on total investment and the level of medical technology required.
Further, due to the involvement of health data and other national information, wholly foreign-owned hospitals may face different regulations in areas such as pre-approval and medical care services.
Investors will need to closely monitor the development and implementation of regulations for wholly foreign-owned hospitals, particularly issues related to national treatment, regulatory models, and the free flow of foreign capital.
BIOTECHNOLOGY DEVELOPMENT AND APPLICATION
China’s negative list has explicitly prohibited foreign investment in the development and application of human stem cells, gene diagnosis, and treatment technologies since 2007.
With the issuance of the joint circular, foreign investment entities can now engage in these activities within the free-trade zones of Beijing, Shanghai, Guangdong, and the Hainan Free Trade Port for the purposes of registration, market authorisation, and manufacturing.
Once approved, these products may be used nationwide.
The loosening up of restrictions on foreign investment in the development and application of stem cell, gene diagnosis, and treatment technologies must be balanced against ensuring China’s biosecurity, which has been a long-standing focus for the country.
Foreign investors participating in the pilot program will need to ensure they are aware of and adhere to the relevant Chinese laws and regulations.
These include regulations relating to human genetic resource management, drug clinical trials, drug registration and listing, drug production, and ethical review.
Foreign investors must also ensure they follow the necessary management procedures.
Additionally, foreign investors must remember that while China’s dynamic healthcare market is continuously growing, making it one of the most attractive in the world, it is heavily regulated with high compliance requirements and strong competition.
For foreign investors to successfully enter the market, it is crucial they stay abreast of changes to industry policies and requirements and develop a well-tailored strategy.
