China Opens Doors to Foreign Investment in Cell Therapy and Wholly Foreign-Owned Hospitals in Pilot Cities

China is piloting a new round of relaxed foreign investment limits in selected cities, permitting foreign investment in cell and gene therapy as well as wholly foreign-owned hospitals. The move reflects China’s ongoing efforts to attract greater foreign capital and further open its economy.

UPDATE (November 29, 2024): 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. This prompt follow-up demonstrates a strong commitment to opening up the healthcare sector and supporting foreign investment.

On September 8, 2024, the Ministry of Commerce (MOFCOM) published a circular on its official website announcing the expansion of pilot programs for opening up the medical sector (the Circular). This circular 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 follows the release of the full text of the “Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition)” (2024 FI Negative List) by the MOFCOM and the National Development and Reform Commission (NDRC) on the same day.

In mid-August, when the 2024 FI Negative List was approved, the State Council meeting emphasized that China will “further relax foreign investment access, completely removing restrictions on foreign investment in the manufacturing sector and accelerating the opening of the telecommunications, education, and healthcare service sectors”.

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While the final 2024 FI Negative List still includes provisions prohibiting investment in human stem cells, gene diagnosis and treatment technology development and application, and limiting medical institutions to joint ventures, the relaxation of foreign investment limits in CGT and medical institutions in pilot cities aligns with the directives from the State Council meeting, offering new opportunities for foreign investors eyeing China’s biotech and healthcare sectors.

Below, we summarize the key points of the Circular and delve into its implications.

Allowing FIEs to engage in CGT in 4 FTZs

According to the Circular, effective immediately, FIEs are now permitted to engage in the development and application of human stem cell, gene diagnosis, and treatment technologies within the China (Beijing) Pilot Free Trade Zone, China (Shanghai) Pilot Free Trade Zone, China (Guangdong) Pilot Free Trade Zone, and Hainan Free Trade Port (FTP). These activities are aimed at product registration, listing, and production. Once registered, listed, and approved for production, these products can be utilized nationwide.

Despite this relaxation, FIEs participating in the pilot program must adhere to relevant Chinese laws and regulations, including those related to human genetic resource management, drug clinical trials (including international multi-center clinical trials), drug registration and listing, drug production, and ethical review, and must follow the necessary management procedures.

Moderately relaxing policy restrictions on foreign investment in the development and application of stem cell and gene diagnosis and treatment technologies, while ensuring China’s biosecurity, has been a long-standing call and effort within the industry.

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Previously, the 2021 FI Negative Lists explicitly prohibited “foreign investment in the development and application of human stem cells, gene diagnosis, and treatment technologies.” Due to the broad nature of this prohibition, many foreign-invested enterprises nationwide interpreted it strictly or from different perspectives, leading to hesitancy in pursuing related business activities and consequently slowing down the development of these sectors.

Subsequently, the MOFCOM issued the “Catalogue of Technologies Prohibited and Restricted from Export in China,” which added human cell cloning and gene editing technologies (prohibited from export), CRISPR gene editing technology (restricted from export), and synthetic biology technology (restricted from export). This change also raised concerns within the industry.

Although the current pilot policy move is limited to four FTZs/FTP, many industry players feel that barriers have been removed for investing in China’s CGT industry, especially considering the products can be utilized nationwide. In future, it is expected that the pilot policy may expand to include more cities and regions with a strong foundation in CGT, such as Tianjin, attracting foreign investment into China’s biotech industry.

Permitting wholly foreign-owned hospitals in selected cities

In addition to the relaxations on CGT investment, the Circular also proposed to allow the establishment of wholly foreign-owned hospitals (excluding traditional Chinese medicine and the acquisition of public hospitals) in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and the entire island of Hainan. Specific conditions, requirements, and procedures for establishing wholly foreign-owned hospitals will be notified separately.

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. This prompt follow-up demonstrates a strong commitment to opening up the healthcare sector and supporting foreign investment. Read more here.

Previously, foreign investment in medical institutions has long been restricted to joint venture structures and cooperation with Chinese companies, unless where special approval has been granted. An exemption exists for Hong Kong entities and eligible Hong Kong Service Suppliers, who are eligible to establish wholly foreign-owned medical institutions if they meet the requisite conditions under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). Additionally, in 2014, wholly foreign-owned hospitals were once allowed in seven cities including Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Guangdong, and Hainan on a pilot basis.

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Despite the 2014 pilots for wholly foreign-owned hospitals, foreign investors have predominantly established hospitals in China through joint ventures rather than sole ownership due to various reasons. However, there has always been a market demand for wholly foreign-owned hospitals, as they can introduce international medical technologies, talent, nursing models, service concepts, and management practices.

As China’s economy develops and its population ages, the demand for medical services continues to grow. For foreign investors, China represents a significant market.

The recent policy allowing foreign investors to establish wholly-owned hospitals in nine pilot cities provides greater security and decision-making power for investors. This, in turn, broadens investment channels in the medical field and promotes innovation and development in medical service models.

On the other hand, 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 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.

(This article was first published on September 10, 2024 and was last updated on November 29, 2024.)

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