Beijing pushes foreign investors into healthcare
October 18, 2012 | BY
clpstaffA new Beijing Policy is designed to attract foreign investors to the healthcare sector, which is expected to develop rapidly, but until regulations at the national-level catch up investors can only guess at the true impact
Details of the Policy emerged at the end of August, with many expecting it to become effective by the end of the month. The policy is expected to offer some relief to foreign investors who have to overcome multiple regulatory approvals in order to enter the promising but highly regulated medical industry.
Signs that the sector was opening up first came in 2011, when the updated Foreign Investment Industrial Guidance Catalogue (外商投资产业指导目录) became effective and the 30% minimum equity interest permitted to be held by Chinese investors was removed.
But foreign investors have been left waiting as the Measures for the Administration of Sino-foreign Equity and Cooperative Joint Venture Medical Institutions (中外合资、合作医疗机构管理办法) have yet to replicate what the Catalogue allows.
Draft Measures indicate a possible relaxation on the equity share investors can hold. Until the Measures are promulgated, previous legislation issued in 2000 remains in play, which strictly limits the share ownership of foreign investors.
“The Policy is an indication of the direction the government is heading, but it cannot go beyond what the national laws and regulations allow,” said Rebecca Silli, a partner at Gide Loyrette Nouel. “But local authorities will be welcoming or examining investment in this sector with a favourable eye,” she added.
|Incentives
Investors will have to wait until the Policy is issued to see how they can benefit from the incentives. However, reports from China Daily suggest that land use, taxation and favourable payback conditions will all be included in the Policy.
In terms of tax, a business tax (BT) exemption for the first three years of the private hospital's operation is expected. In addition, an income tax exemption on the before- tax profits that companies invest in medical services is also anticipated.
|Contradictions
While tax incentives are promising, they also raise questions. “The Policy discusses BT exemption, but the Municipality is also part of the VAT pilot scheme, which means BT is going to disappear soon,” said Silli.
Land use incentives are also problematic as investors will be seeking prime locations close to city centres. If the Policy offers incentives for land that is outside the city then it will be of little use for foreign investors.
Silli also pointed out that an exemption on income tax is not possible unless it is backed up by national-level regulations; if not then it is likely to be in the form of a subsidy. If the exemption is a subsidy, investors will have to ensure the details are included in their contracts in order to enjoy the benefits.
The draft Measures on joint ventures create issues for investors as well. The draft states that non-profit medical intuitions cannot partner with for-profit private hospitals. This means the reputation that non-profit hospitals enjoy cannot be merged with newcomers like private hospitals, who will be hedging the success of the hospital on that reputation.
|Preparation
Wenzhou has also released a similar policy to Beijing to attract foreign investors into the private healthcare sector. The policies are a clear indication that local governments are interested in securing foreign investment, but until national-level regulations are promulgated, investors are left playing a waiting game.
“Clients are doing a lot of preparatory work since the Catalogue came out and as soon as the relevant policies are issued they will be looking to invest. We expect authorities to exercise great scrutiny when approving the first projects. The opening up will be very gradual,” commented Silli.
While the regulatory climate remains uncertain, the need for foreign investment is clear. The Ministry of Health has set targets that by 2015 20% of China's patient volume will be handled by private hospitals. Private hospitals account for 9% of patients at present.
The Beijing policy is a good sign, but more has to be done on the national-level. As more provinces consider implementing similar policies, it is hoped to government will catch up and foreign investors will begin pouring into this market.
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