Questions remain over foreign-invested hospitals (Part 2)

Foreign investors still have to meet certain minimum requirement as stipulated in the Interim Measures for JVs from 2000. Investors have to provide one of the following:

· Internationally advanced managerial experience in managing health institutions, modes of management and modes of services; or

· Internationally cutting-edge medical technologies and equipment; or

· Complement or make up for the inadequacy of local medical service capacity, medical treatment technologies, medical facilities, and for the insufficiency of funding to the local health industry.

“This is one of the challenges that investors are finding because the criteria impose fairly strict restrictions. The fact that only qualified investors are allowed and must have the relevant direct or indirect experience is hindering progress,” said Rebecca Silli, a partner at Minter Ellison in Hong Kong*.

Test case

It is thought that the authorities are using the FTZ as a testing ground for wholly foreign-owned medical institutions.

“Given the concerns about the competition to the public medical institutions and other uncertainties, it is understandable that the Chinese government is using the liberalisation in the FTZ as a test case in a very limited region before such policy is to be rolled out nationwide,” said Molly Qin of MWE China Law Offices in Shanghai.

But foreign investors were hoping for bigger amendments. The FTZ may be a stepping-stone to a greater reform in this space, but it is hard to say if and when this policy will be rolled out nationwide.

Restrictions

Despite the positive move, foreign investors have to be cautious as there are still questions that remain unanswered.

“At this early stage of the opening up of this industry, few investors will consider that WFOEs are attractive, as this raises other challenges. For instance, once you have a WFOE, what access will there be to doctors, especially considering qualified and sought-after PRC doctors can find it hard to leave public health institutions” said Silli.

There is also the question of location, with many investors wondering if the Shanghai FTZ is the right place to open a medical institution. The cost of land within the Zone has rapidly increased, which minimises its attractiveness.

Foreign investors also need to consider if patients will be willing to travel to the FTZ for treatment.

“It is also not clear whether new related polices may also be issued to take other restrictions or disadvantages in connection with the actual operation of foreign-invested or private medical institutions, compared to public ones. For example, access to medical insurance programmes, unclear tax treatments and unfavourable academic positions,” said Dai.

“This is a positive move, theoretically knowing that you can have a WFOE, but investors are still waiting for additional regulations and clearer government policies to be adopted, in order to be able to push projects to successful completion” said Silli.

(*as of January 6 2014)

By David Tring

Further reading:

Foreign investment in healthcare opens

A window into the future

General Plan for the China (Shanghai) Pilot Free Trade Zone