Expansion of Pilot Programs in Biotechnology and Hospitals in some Designated Areas (MOFCOM)

On September 8, 2024 China’s Ministry of Commerce (MOFCOM) published Circular No. 568, which announced the expansion of pilot programs in biotechnology and hospitals in some designated areas.

This represents a joint notice by the Ministry of Commerce, the National Health Commission and the National Medical Products Administration on the pilot work regarding expanding and opening up the medical sector.

Circular No. 568, published on MOFCOM’s website, has both an industry-specific as well as a wider industry scope, offering new opportunities for foreign investors eyeing China’s biotech and healthcare sectors.

The two main points of the Circular are:

1. The previous ban on foreign-invested enterprises (FIEs) engaged in cell and gene therapy (CGT) is lifted. CGT-related businesses may now operate in selected free trade zones (FTZs) in China.

Starting from the notice issuance date, foreign-invested enterprises are allowed to engage in the development and application of human stem cells, genetic diagnosis and treatment technologies inside these FTZs. These activities focus on product registration, listing, and production. Once the products are registered, listed, and approved for manufacturing, they can be used nationwide.

The four areas this announcement affects are China (Beijing) Pilot Free Trade Zone, China (Shanghai) Pilot Free Trade Zone, China (Guangdong) Pilot Free Trade Zone, and Hainan Free Trade Port (FTP).

FIEs participating in the pilot program must:

1) Adhere to the industry-specific related laws and regulations,

2) Perform the necessary management procedures and

3) Comply with the requirements of human genetic resources management, drug clinical trials (including international multi-center clinical trials), drug registration and listing, drug production and ethical review.

2. China officially open for wholly foreign-owned hospitals

The Circular also proposed the plan to establish wholly foreign-owned hospitals (excluding traditional Chinese medicine and the acquisition of public hospitals).

The first group of pilot cities are Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and the entire island of Hainan.

What does it mean in practice? And weren’t wholly foreign owned hospitals already allowed?

Previous hospital sector opening up measures like the pilots initiative of 2014 already allowed wholly foreign-owned hospitals to be established in Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Guangdong, and Hainan. Due to some reasons, foreign investors have continued to mainly prefer the Joint Venture model.

Also, under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) exemptions exist for Hong Kong entities and eligible Hong Kong Service Suppliers. They are eligible to establish wholly foreign-owned medical institutions, provided they meet the necessary conditions.

In general however, restrictions have existed and to a certain extent still exist for foreign investors. Unless special approvals were obtained, foreign-investment in the field has been limited to the establishment of Joint-Ventures with partners in China.

In sum, sole ownership was not perceived by foreign investment as the way to establish foreign-owned hospitals.

Why is this opening to foreign investors? And why specifically now?

Following a long written interview with Marco van der Putten Landau, CEO & Founder of Eyes on China and CIBP, there are several important reasons behind this change:

“As part of its Healthy China 2030 plan released in 2016, China has been merging primary care facilities as well as building many new ones throughout the country. A relative increase in quality of care, namely in urban areas is also noticeable.

Disparities exist between urban and rural areas, private and public hospitals and clinics in terms of trust of care. Without going too much into detail, it is still common to see patients and their families traveling long distances from other provinces to receive treatment at tertiary hospitals in Beijing or Shanghai.

Despite the potential positive effects, this reform when implemented will give many more options to Chinese patients by providing a higher quality of medical care, service and improved management.

The current discussion taking place in China at the moment as well as among the academic community, both in China and abroad, concerns matters such as the localization of foreign-funded hospitals in China, competitive relationships with the existing public hospital system, local labor ‘brain drain’, and the pricing mechanism of medical services.

These and other factors will affect how this policy is put into practice. In addition, whether future foreign-funded hospitals in China can truly meet the needs of Chinese patients, in terms of expectations, the not less important cultural barriers [or merely serving the high-end market] is an issue that deserves further analysis.

As of December 2023, the number of Chinese people over 60 years old was 251 million,with an average yearly increase of 7-9 million new ‘seniors’. Today that figure is close to 260 million. The UN forecasts nearly 450 million people in China will be aged 60 or older by 2045*.

Independently from the statistics this represents a huge number of people and therefore the medical needs of China’s aging population are a significant driving force behind the current hospital reforms.

Opening to foreign-invested enterprises may seem like a small step in policy, especially since the construction of large, new hospitals takes time to complete, but it is not insignificant. I believe this represents a major advancement towards better care management, innovation and service in particular towards China’s aging population and towards a more policy-guided internationalization of medical care.

This also raises a key question about whether foreign-funded hospitals can be included in China’s medical insurance system. If these hospitals are integrated into the national system, it would be a positive development, as it would provide more treatment options and likely ease the current strain on public hospitals. However, if they are excluded from the system, they could become a luxury accessible exclusively to the wealthy. Time will tell.

Regardless of how this issue plays out, I believe it will significantly impact the entire medical market. Many Chinese doctors will explore joining the private sector to find better remunerated job opportunities.

We anticipate the creation and upgrading of new industries, business models and job opportunities, such as potential upgrades in the medical insurance sector. Foreign investment may introduce new commercial insurance concepts to China, including those focused on promoting lifelong services.

Like many things in life, those interested should take it with a “grain of salt” and should learn about the specific conditions, requirements, and procedures for establishing wholly foreign-owned hospitals. Interested parties will have to wait as these will be notified separately.

Independently from how this will take shape, it will definitely stir up the entire medical market.”

* United Nations Population Division, “World Population Prospects 2019.” https://population.un.org/wpp/DataQuery/.

Established in Beijing in 2003, Eyes on China is a pre- and post- investment advisory company. A business advisory for multinationals and SME clients with FDI plans to and from China. www.eyesonchina.com

CIBP is a management consulting and investment advisory company with a focus on creating transnational cooperation in the fields of med tech, climate and sustainable agri-tech. Among others, these include China focused BPs, market access, due diligence, brand awareness creation, match-makings, and KOL strategies, www.cibp.online