China Permits Foreign Investment WFOEs in Medical Industry

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Dec. 14 – In a follow up to the piece we wrote last week on China opening up its medical industries to foreign investment, here we offer readers a direct translation of the pertinent text taken from Guobanfa [2010] No. 58 issued on November 26.

Article 5: Allowing overseas capital to establish medical institutions

Opening up shall be further deepened for medical institutions and investments in medical institutions by overseas capital shall be adjusted into permitted foreign-invested projects.

Overseas medical institutions, enterprises and other economic organizations shall be allowed to set up medical institutions through the form of joint ventures or cooperative joint ventures within China with Chinese medical institutions, enterprises and other economic organizations to gradually cancel restrictions over the proportion of equity held by overseas capital.

Eligible overseas capital may establish wholly-owned medical institutions within China on a pilot basis and restrictions shall be removed gradually.

Overseas capital may make investments in both for profit medical institutions and non-profit medical institutions.

Overseas capital shall be encouraged to establish medical institutions in the central and western parts of China.

Capital from Hong Kong SAR, Macau SAR and Taiwan region in establishing medical institutions in the mainland shall enjoy priority support policy in accordance with relevant provisions.

Article 6: Simplifying and standardizing examination and approval procedures for overseas capital making investments in medical institutions

The establishment of Sino-foreign joint venture medical institution and Sino-foreign cooperative joint venture medical institution shall examined and approved by health authorities and commerce authorities at the provincial level, among which the establishment of Chinese medicine hospital, Chinese and western medicine hospital and minority medicine hospital shall seek the opinions of Chinese medicine administration authorities at the provincial level.

The establishment of foreign wholly-owned medical institutions shall be examined and approved by the Ministry of Health and the Ministry of Commerce, among which the establishment of Chinese medicine hospitals, Chinese and western medicine hospitals and traditional Chinese medicine hospitals shall seek the opinions of the State Administration of Traditional Chinese Medicine. Specific measures shall be separately formulated by relevant authorities.

At present, foreign investment is only permitted (with very rare exceptions) in the form of Joint Ventures, however the circular states the equity amount in favor of the Chinese partner may now be reduced. Initial pilot schemes will be permitted for the establishment of WFOEs, while the promulgation of the application procedures is still being worked on.

Also within the circular are the provisions for more “social capital” to be made available for the reform of public hospitals. It dictates the circular is intended to “stably transform some public medical hospitals into non-public medical institutions, appropriately lower the proportion of public hospitals, promote the reasonable distribution of public hospitals and create the situation in which multiple investments are made in medical institutions,” effectively meaning the door has now opened for a class of private hospitals to be both funded from overseas to service the domestic market.

This circular paves the way for far easier access to the large medical care industry in China for foreign investors. Further information concerning this development and the implications for interested parties may be made to Richard Hoffmann, senior legal associate at Dezan Shira & Associates. The firm handles numerous clients in China’s health care and medical industry and can be contact at legal@dezshira.com.