China Expands Access for Wholly Foreign-Owned Hospitals: 9 Cities Open for Investment

Following the initial announcement in September, China released a detailed work plan for wholly foreign-owned hospitals in nine cities: Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and the entire island of Hainan. This prompt follow-up demonstrates a strong commitment to opening up the healthcare sector and supporting foreign investment.

On November 29, 2024, the National Health Commission (NHC) together with three other government departments announced the detailed work plan for the establishment of wholly foreign-owned hospitals in nine major cities, including Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and the entire island of Hainan.

This is a prompt follow-up of the pilot policy released in September this year, which lifts bans on foreign-invested enterprises (FIEs) engaging in cell and gene therapy (CGT) in selected free trade zones (FTZs) and permits wholly foreign-owned hospitals in selected cities.

This reform is part of a broader agenda to modernize key industries, including healthcare and telecommunications, by addressing growing domestic demand and encouraging foreign participation.

In this article, we introduce the eligibility and requirements for wholly foreign-owned hospitals as outlined in the detailed work plan and address frequently asked questions regarding this pilot.

Who can set up wholly foreign-owned hospitals in China?

According to the official announcement, foreign investors applying to establish wholly foreign-owned hospitals must be legally responsible entities with experience in directly or indirectly investing in and managing medical services.

They must also meet the following requirements:

1. Provide advanced international hospital management concepts, models, and service frameworks.
2. Offer medical technologies and equipment at an internationally leading level.
3. Enhance or address local deficiencies in medical service capacity, technology, and facilities, contributing to a diversified service supply.

What are the requirements for setting up wholly foreign-owned hospitals in China?

According to the official announcement, wholly foreign-owned hospitals must be established and operated in compliance with relevant laws and regulations:

• the Basic Medical and Health Promotion Law of the People’s Republic of China;
• the Biosecurity Law of the People’s Republic of China;
• the Data Security Law of the People’s Republic of China;
• the Regulations on the Administration of Medical Institutions; and
• the Regulations on the Administration of Human Genetic Resources of the People’s Republic of China.

They must also adhere to the following criteria:

1. The hospital can operate as either a for-profit or non-profit entity.
2. The hospital must be a general hospital, specialty hospital, or rehabilitation hospital at the tertiary level. Psychiatric hospitals, infectious disease hospitals, hematology hospitals, traditional Chinese medicine hospitals, integrated Chinese and Western medicine hospitals, and ethnic medicine hospitals are not permitted.
3. The hospital cannot register hematology as a medical specialty.
4. High-risk medical and ethical procedures are prohibited, including organ transplant techniques, human-assisted reproductive technologies, prenatal screening and diagnosis, inpatient psychiatric treatment, and experimental cancer cell therapy.
5. Hospitals are allowed to hire foreign medical practitioners, medical professionals from Hong Kong, Macao, and Taiwan, and other healthcare professionals from these regions for short-term practice. However, no less than 50 percent of the hospital’s management and medical technical staff must be from the Chinese mainland.
6. The hospital’s information management system must connect to the local medical services regulatory platform. Servers storing electronic medical records and medical equipment information must be located within China.
7. Hospitals that meet the requirements for medical insurance may apply to be included in the medical insurance network. Additionally, hospitals are encouraged to interface with domestic and international commercial health insurance providers.

Other frequently asked questions

Why were the nine cities chosen for the pilot? What are their advantages?

The selection of these nine provinces and cities was based on several considerations:

1. Medical service demand: The primary function of wholly foreign-owned hospitals is to provide diverse medical services to the public and expatriates in China. These nine regions have a high degree of openness, with many foreign enterprises and expatriates, leading to a higher demand for medical services for expatriates.
2. Medical management level: In 2000, China issued the “Interim Measures for the Administration of Sino-Foreign Joint Venture and Cooperative Medical Institutions.” Many joint venture medical institutions were established in these nine regions, accumulating rich management experience and relatively high management levels. Therefore, conducting the pilot for wholly foreign-owned hospitals in these regions is more conducive to policy implementation, experience summarization, and system improvement.
3. Promoting foreign investment: These nine pilot regions not only have large populations, high demand for medical services, and good medical infrastructure but also favorable business environments. They account for over 45 percent of the total actual use of foreign investment in China, making them attractive areas for foreign investment in hospitals.

What kind of regulation will wholly foreign-owned hospitals face?

The official announcement specifies full-process management requirements, including admission and post-admission supervision, for wholly foreign-owned hospitals.

1. General requirements: Wholly foreign-owned hospitals must comply with general requirements of laws and regulations such as the “Basic Medical and Health Promotion Law,” “Biosafety Law,” “Data Security Law,” “Regulations on the Administration of Medical Institutions,” and “Regulations on the Administration of Human Genetic Resources,” as well as the specific conditions outlined in the official announcement.
2. Approval and admission: There are specific requirements for the investment entity, level, category, medical subjects, activities, personnel composition, and data security of wholly foreign-owned hospitals. For example, hospital information management systems must connect to local medical service supervision platforms, and servers for storing electronic medical records and medical equipment information must be located within China to ensure data security. The approval process involves preliminary review by municipal health departments and final approval by provincial health departments.
3. Operational management: Wholly foreign-owned hospitals must implement the same medical quality management as domestic medical institutions, comply with laws, regulations, and medical norms, and participate in hospital evaluations. Local health departments will supervise wholly foreign-owned hospitals and other medical institutions equally.

Can wholly foreign-owned hospitals become designated institutions for basic medical insurance?

Yes. In principle, medical institutions that meet the resource allocation plan for designated medical institutions, comply with the medical price policies set by administrative departments, and meet the management requirements of medical insurance can apply to become designated institutions, regardless of whether they are public, private, or wholly foreign-owned.

To apply, medical institutions must meet the following four requirements:

1. Implement unified medical service pricing projects.
2. Implement unified medical service price policies.
3. Implement unified medical insurance coverage.
4. Accept supervision and management by medical insurance departments.

Medical institutions not included in the designated management of medical insurance can set their prices independently and are subject to industry supervision.

What regulations should wholly foreign-owned hospitals follow regarding the use of drugs and medical devices?

Like other medical institutions, wholly foreign-owned hospitals must use drugs and medical devices approved for sale in China.

They must comply with laws and regulations such as the “Drug Administration Law,” “Vaccine Administration Law,” “Regulations for the Implementation of the Drug Administration Law,” and “Regulations on the Supervision and Administration of Medical Devices,” and related supporting regulations to strengthen the quality management of drugs and medical devices.

For example, they should establish a quality management system for drugs and medical devices, set up dedicated departments (or designated personnel) responsible for quality management, and ensure quality management throughout the procurement, storage, and use of drugs and medical devices.

Special management drugs, such as radioactive drugs, require relevant usage permits. They must also strictly manage procurement and acceptance, purchase drugs and medical devices from legally qualified holders or registrants, and conduct adverse event monitoring.

Regarding the import of small quantities of urgently needed clinical drugs and devices:

Wholly foreign-owned hospitals must manage the import of small quantities of urgently needed drugs and Class II and III medical devices according to the “Drug Administration Law,” “Regulations on the Supervision and Administration of Medical Devices,” “Temporary Import Work Plan for Urgently Needed Clinical Drugs,” and “Management Requirements for Temporary Import and Use of Medical Devices for Urgently Needed Clinical Use.”

Can wholly foreign-owned hospitals conduct clinical drug trials?

Yes. According to the “Administrative Measures for Drug Clinical Trial Institutions” and the “Conditions and Filing Management Measures for Medical Device Clinical Trial Institutions,” medical institutions at or above the secondary level that meet the filing conditions can be filed as drug and medical device clinical trial institutions. The nature of the institution (e.g., wholly foreign-owned hospital, private hospital, public institution) is not a restriction for filing as a clinical trial institution.

What are China’s plans for attracting foreign investment in the medical field?

The Ministry of Commerce will focus on three key areas to boost foreign investment in the medical sector:

1. Implementing the expanded opening-up pilot: The Ministry plans to enhance communication with foreign enterprises through roundtable meetings, provide clear policy interpretations, and guide the commerce departments of the nine selected provinces and cities to work closely with health departments in implementing pilot policies for wholly foreign-owned hospitals.
2. Increasing policy support: To align with the actual needs of China’s medical field and the latest international medical technology developments, the Ministry will consider adding new encouraged items to the “Catalogue of Industries Encouraging Foreign Investment.” This move aims to support foreign enterprises in channeling more resources into technological innovation, thereby promoting high-quality development in China’s medical sector.
3. Strengthening foreign investment service guarantees: The Ministry will collaborate with relevant departments and local governments to address challenges in various stages such as land use, environmental assessments, energy consumption, and financing. This comprehensive support aims to ensure the timely landing, construction, and production of key foreign investment projects, including those in the medical field.

Why is this significant?

The decision reflects China’s recognition of its growing healthcare needs, driven by an aging population and rising demand for premium medical services. Foreign-owned hospitals are expected to bring advanced technologies, specialized expertise, and international management practices to the country. This reform also aims to diversify healthcare services, addressing the dominance of public hospitals, which handle over 80 percent of patient visits despite accounting for less than a third of the total number of hospitals.

This initiative builds on a 2014 pilot program that allowed foreign-owned hospitals in select areas. However, that earlier attempt faced hurdles like unclear policies and market adaptation challenges. The new plan addresses these issues with clearer guidelines, stronger policy support, and streamlined processes to encourage sustainable foreign investment.

How does this affect foreign investors?

For investors, this reform opens the door to one of the world’s largest and fastest-growing healthcare markets. The high-end healthcare sector, in particular, offers significant potential, with demand for premium services expected to rise. Additionally, foreign-owned hospitals can help diversify the medical landscape in China, complementing the public system and meeting the needs of patients seeking specialized care.

That said, navigating China’s highly regulated healthcare sector will require careful planning. Key challenges include compliance with data security rules, land-use policies, and financing requirements. Regulators have promised end-to-end support for foreign-funded projects, addressing potential hurdles and expediting operational launches.

What about biotech?

The reform extends beyond hospitals. Pilot programs in free-trade zones, such as those in Shanghai and Hainan, now allow foreign firms to develop and apply advanced technologies like stem cell and gene therapies.

This marks a significant opening in a sector that has been tightly restricted since 2007, presenting new opportunities for biotech companies aiming to enter the Chinese market.

Bottom line

This move signals China’s commitment to opening its economy and modernizing its healthcare sector. By introducing foreign ownership in hospitals and biotech, China aims to attract high-level international expertise while meeting its domestic healthcare challenges.

For investors, this is both an opportunity and a call for strategic engagement, with the potential for significant rewards in a dynamic but highly regulated market.

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