Is China’s healthcare market open to foreign investment?

When investing in China’s healthcare market, one of the first considerations should be whether the specific sector they want to enter allows foreign investment.

Despite China’s continuous liberalisation of its healthcare industry to allow foreign participation by removing items from the Special Administrative Measures (Negative List) for Foreign Investment Access (hereafter referred to as the “FI Negative List”) and adding items to the Catalogue of Encouraged Industries for Foreign Investment (hereafter referred to as the “FI Encouraged Catalogue”), there are still certain sectors that remain off-limits or restricted to foreign investment.

Medical institutions

On 8 September 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. This circular permits wholly foreign-owned hospitals in selected cities. The Chinese government has emphasised 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”.

Following the initial announcement, on 29 November 2024, the National Health Commission (NHC), together with three other government departments, 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.

In practice, even prior to recent adjustments to the regulations, some foreign investors had managed to break through these restrictions on foreign ownership ratio or even gain complete control over domestic medical institutions through historical investment, domestic reinvestment, VIE arrangement, or custody agreement. However, they may face obstacles when changing or renewing their operational qualifications, such as the Practicing License of Medical Institutions. Furthermore, in the case of subsequent shareholding changes, regulatory authorities may review the actual foreign shareholding ratio based on the “look-through approach” (穿透式审查, meaning tracing to the ultimate shareholder by looking through the multiple layers of shareholding structure based on the current effective law at that time), which may require foreign investors to reduce their ownership. Therefore, foreign investors should exercise caution when planning their investment structure.

Human stem cells and genetic technology

The aforementioned MOFCOM circular from September 2024 also lifted bans on foreign-invested enterprises (FIEs) engaging in cell and gene therapy (CGT) in selected free trade zones (FTZs).

Foreign investors are encouraged to invest in the manufacturing of high-throughput gene sequencing systems, according to the latest FI Encouraged Catalogue. Foreign investors are also generally not restricted from engaging in the import and export, production, sales, and research and development of genetic testing equipment.

On the other hand, in accordance with the Regulations of the People’s Republic of China on the Administration of Human Genetic Resources, foreign investors can cooperate with domestic institutions in scientific research related to stem cell and/or genetic diagnosis and treatment, provided that certain requirements are met, and regulatory approvals are obtained. They can also grant licenses to domestic institutions for the technological development and sale of genetic diagnostics and/or stem cell products owned by them.

Although there are established pathways for foreign investment in the sector, foreign investors may still encounter challenges. For instance, it can be challenging to clearly distinguish between the development of genetic testing equipment and the research and development of genetic testing technology in practice. Consequently, some activities of genetic testing equipment research and development enterprises may be classified as the application of genetic diagnosis and treatment technology, thereby prohibiting foreign investment. To avoid such complications, foreign investors are advised to communicate with relevant authorities in advance.

Traditional Chinese medicine

Foreign investors are prohibited from investing in the application of steaming, frying, moxibustion, calcination, and other processing techniques of traditional Chinese medicine (TCM) decoction pieces, as well as the production of confidential prescription products of proprietary Chinese medicines. However, such restrictions do not exist in China’s 21 free trade zones.

Beyond these three sectors – medical institutions, human stem cell and genetic diagnosis and treatment technology, and TCM – other healthcare sectors are mostly open to foreign investment in China.

In fact, foreign investment is actively encouraged in many healthcare areas, such as the manufacturing of new compound drugs or drugs with active ingredients, researching and developing (R&D) and manufacturing of cell therapy drugs (excluding areas where foreign investment is prohibited), manufacturing of dental implant systems for implant repair in patients with bone loss, postpartum maternal and child services in maternity centres, and rehabilitation institutes for autistic children, to name a few. Foreign investors with expertise and a strong presence in a particular area should confirm whether their business falls within these encouraged sectors to benefit from corresponding investment facilitations and receive preferential land and tax incentives.

Approval and licensing

The healthcare sector has always been subject to stringent regulations as the quality of medical services and healthcare products directly impact the safety and wellbeing of individuals. Recent efforts have been made to simplify and streamline administrative procedures in the healthcare industry, as part of medical reforms aimed at encouraging social capital, including foreign investment, to participate in providing diversified healthcare services. However, relevant market players still need to obtain various qualifications and fulfil registration and approval procedures to demonstrate their technical capabilities and ensure compliance with regulations.

Pharmaceuticals

In the pharmaceutical area, depending on their specific business scope and business type, different certifications and qualifications are required:

For businesses engaging in pharmaceutical R&D, they will need to obtain a Good Laboratory Practices for Nonclinical Drug Research (GLP) certificate issued by the National Medical Products Administration (NMPA) for doing preclinical trial; a record-filing with local health bureau for the use of pathogenic microbiology and an approval from local department of science and technology for use of experimental animals in laboratories; a Radiation Safety Permit from local environmental protection bureau if the drug R&D process involving radiative materials; and import-export related licensing and approvals if the drug R&D involves in imported raw materials.

For businesses engaging in pharmaceutical manufacturing, they will need to apply for a Drug Manufacturing License from provincial NMPA and then comply with the Good Manufacturing Practices (GMP) standards. They also need to obtain a Work Safety License for the production activities, and relevant import-export licenses if needed.

For businesses engaging in drug supplying and trading, they will need to apply for a Drug Trading License and comply with the pharmaceutical Good Supply Practice (GSP) standards.

Medical devices

Medical devices in China are subject to classified management: medical devices are divided into three classes based on the level of risk they present to patients or users. Class I is the lowest risk class and is subject to record-filing management, which is comparatively easier, and Class II and Class III are the higher risk classes and are subject to product registration management, which involves a longer and more rigorous process.

Upon registration, the business will obtain a Medical Device Registration Certificate for relevant Class II and Class III medical devices. Also, businesses will need to file a record with local NMPAs for trading Class II medical devices while they need to obtain an approval for trading Class III medical devices.

Medical institutions

As for setting up medical institutions, foreign investors will need to obtain an Approval for the Establishment of Medical Institutions and a Practicing License of Medical Institutions from local health authorities.

Medical institutions will additionally need to obtain multiple licenses based on their business scope, such as the license for radiological diagnosis and treatment, license for maternal and infant health technical service institutions, license for occupational health examination and diagnosis institutions, and license for purchase and use of narcotic drugs and category I psychotropic drugs.

However, under the “many-in-one” reform, most of these post-establishment licenses, except the Large Medical Equipment Configuration License, have been integrated into the Practicing License of Medical Institutions. That is to say, upon getting approval for relevant applications, the authority in charge will affix relevant information on the Practicing License of Medical Institutions, rather than issuing separate licenses.

Crackdown on corruption in the healthcare sector

Businesses operating in the healthcare industry should also pay attention to anti-corruption management, as China sees corruption in the medical fields as one of the main factors that undermine the reliability and efficiency of the country’s medical system. The government has taken a strong stance against anti-competitive behaviours and corruption in the medical field, leading to increased scrutiny and low tolerance for such actions.

In August 2020, the Central Supervision Commission (CSC) issued a notice emphasizing the importance of strict anti-corruption investigations in the medical field. In October of the same year, the CSC issued another statement calling for the investigation of power-money transactions, the establishment of a list of dishonest individuals, and the cutting off of the benefit chain of medical bribery.

Companies in the healthcare sector are thus at a higher risk of being implicated in commercial bribery and subject to administrative or even criminal penalties. Therefore, it is crucial for relevant enterprises to include anti-corruption measures as an essential part of their overall compliance system. They should also continuously monitor the authenticity, rationality, and verifiability of their employees’ behaviour in subsequent marketing processes.

Key takeaways

China’s healthcare sector is highly regulated and competitive and is among the most promising markets in the global healthcare sector. To succeed in this market, foreign investors must be proactive and agile, planning strategically, acting quickly, and working diligently.

In addition to the considerations mentioned above, foreign investors should stay abreast of the latest policies, not only those related to the administration and compliance of the healthcare sector, but also those outlining the government’s industry priorities. They should adjust their strategy and operations accordingly.

Furthermore, innovation is a key advantage for foreign investors, especially those with expertise in a particular area, but smaller in size. It is wise to capitalise on their creativity by customising their products to meet the needs of the Chinese market and addressing existing challenges. They should also develop a comprehensive intellectual property strategy early on to maintain their competitive edge.

Finally, foreign investors who are unfamiliar with the Chinese market are advised to partner with local companies and hire professional agencies to facilitate market entry and compliance management. However, they should conduct due diligence to verify the reliability and qualifications of potential local partners and professional agencies.

This article was originally published by China Briefing from Dezan Shira and Associates with the title ‘Key Considerations for Entering China’s Healthcare Market’

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Are there any sectors that L&P is specifically targeting from China?

London & Partners is focusing on supporting Chinese investment into areas where London is really strong or is looking to develop its global reputation in new tech of the future. This includes technology which London has traditionally been strong in, like FinTech, AI and green finance. Financial services and real estate are still big areas of interest, too. There’s also growing attention on creative industries, healthcare, and green energy as Chinese investors look for diverse opportunities in London.

What kind of London businesses has China traditionally invested in?

Chinese investors have traditionally put their money into real estate and financial services in London. But over time, we have seen this shift into technology, especially AI and FinTech, as well as renewable energy. This shift shows how Chinese companies are looking to get into new and innovative industries that fit with their global goals.

How has investment from China changed over the last decade?

Over the last ten years, Chinese investment in London has changed a lot. It started with a focus on real estate and infrastructure, but now Chinese companies are investing more in technology, healthcare and creative industries. There are more Chinese-led projects in London now (over 200 since 2013), that are creating jobs (more than 16,000 since 2013) and bringing in money (over £7.5 billion since 2013), which shows how Chinese investors are looking for new markets and advanced technologies.

What are the biggest opportunities for Chinese businesses investing in London?

London offers many opportunities for Chinese businesses, especially in technology, where it’s a world leader in FinTech and AI. There are opportunities for London and China to collaborate around technologies that are addressing some of the major challenges we both face – these are global challenges and need global solutions. London is good at that. Financial services are also a big draw because London is a major financial hub. London’s lively cultural scene offers unique chances in creative industries, and the city’s focus on sustainability makes it a great place for investments in green technology and energy.

How much does cultural influence and the UK’s soft power attract Chinese investors?

The UK’s cultural appeal plays a big role in attracting Chinese investors. London’s rich history, top universities and global arts scene make it a very attractive place for Chinese businesses. These factors, along with London’s reputation as an international hub, help bring in Chinese companies that want to build their global presence.

Are there any good examples of Chinese companies launching (or investing in) London in recent years?

Yes, several big Chinese companies are investing in London. For example, we have seen major commitments from Chinese electric vehicle manufacturers in the UK and London specifically. BYD, the world’s largest maker of electric vehicles, has set up its UK office in London and has delivered over 1,000 electric buses to the city. Chinese real estate developers are also buying and building properties in London. Plus, Chinese banks have opened offices in London, highlighting how important the city is for global finance. Overall, London is the second largest destination city for Chinese foreign direct investment (FDI), behind only Singapore.

How important is the tech business to London investment, and how does the UK compare with other major European markets when it comes to being regarded as a tech capital?

Technology is really important to why investors choose London. London is Europe’s leading and largest tech hub, especially in FinTech, AI and cybersecurity. It has grown in size over the last decade from $70 billion to over $620 billion, with more growth capital and unicorns than anywhere else in Europe. This strong tech scene attracts many Chinese investors, who find London’s mix of tech, financial services, and academic excellence particularly appealing.

2025 will see the first SXSW London – can you tell us more about how this came about and the reasons it is coming to London?

SXSW coming to London in 2025 is really exciting. London’s lively arts scene and strong focus on tech and creativity make it an ideal place for such an event. This decision shows that London is a leading city for fresh ideas and creative thinking.

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There is widespread relief at the prospect of a more predictable operating environment and the resumption of connectivity with the rest of the world since China dropped its zero covid policy. Recovering the more robust levels of confidence common among foreign investors pre-2019 will now need to be the goal if China seeks to capitalise on its reopening, stabilise, grow levels of inbound investment, and return to the “new normal” of annual GDP expansion of 5% or above.

Initial signs of recovery are beginning to emerge as China’s economy begins to come back to life after a year of heavy disruption. Fortunately for the economy, the impact from the first wave of infections arrived early enough in December and January for the process of recovery to capture a significant chunk of the annual Spring Festival boost to travel, leisure and consumption more broadly.

Travel rebounded strongly over the seven-day holiday up 50.9% on 2021, though still significantly lower than 2019 trip volumes (47%) according to the Ministry of Transport. The box office also sprung back to life with around $1 billion generated over the seven-day national holiday, aided by a strong line-up of domestic films and beating 2019 takings. Data from Meituan indicates a recovery of China’s restaurant sector has also started, with Spring Festival revenues for some chains already recovering to pre-pandemic levels.

Signals from China’s leadership such as China’s Vice Premier Liu He’s Davos speech, which included a declaration that China’s economy ‘will get back to normal in 2023,’ have also added further fuel to the relief rally. As have the recent approvals for foreign finance firms to set up or acquire wholly owned mutual funds as well as securities brokerages. One interpretation of this sudden raft of approvals is that they are evidence of a more welcoming stance toward foreign business (and the private sector more broadly). Foreign investors, however, continue to hold a range of concerns that will be more challenging to shake off for the economy than the reversal of zero covid has proven to be, or the lower-hanging fruit of granting approvals.

Boardrooms are asking more questions of China as the number of fronts that present risk or uncertainty has grown. Whether regulatory, geo-political or the shock of zero covid on the operating environment and supply chains, decision-makers will need to recover the belief that China presents not just growth potential but a predictable enough environment to invest long-term.

Relations have been strained between China and several of its closest neighbours, as well as some of its largest trade and investment partners, including the US, Europe, Canada and the UK. Reducing diplomatic tension will have a positive knock-on effect on foreign businesses that have consistently listed geopolitics as a key factor affecting decision-making since 2018 and the onset of the US-China trade war.

A recent PwC survey of CEOs in China indicates a high degree of concern about the long-term viability of their business models in large part due to the shifting geopolitical landscape and the uncertainty that has formed as a result. Geopolitical conflict sat in third place on the list of business risks that CEOs globally are bracing for over the next 12 months and five years respectively, sitting behind only inflation and macroeconomic instability.

China’s recent efforts to reengage with international partners, including Chinese Xi Jinping’s attendance at the November G20, the healing of relations with Australia and the rush of outward official visits expected to take place in the months following Spring Festival, are all encouraging signs. The lack of interaction between the governments of the UK and China, for example, has created a void in recent years where normally there would be regular engagement at both senior and working levels. Resuming dialogue while accepting both sides will continue to have, at times, significant differences, will be a crucial step to rebuilding trust and constructive exchange.

Foreign investors will also be watching closely for signs the economy remains a high priority. The sudden nature of the restrictions imposed on the education sector, for example, sent a chill through the economy and left many businesses concerned their sector might be next in the firing line. Providing businesses with greater transparency and advanced consultation on decisions regarding future legislation or adjustments to rules and regulations will help create a more predictable environment and contribute toward restoring trust among investors. Continued steps toward increasing market access and tackling business environment issues will also play a big role.

Regarding the economy, strong growth appears possible in 2023 with projections generally falling between 4% and 5.5%. The second quarter in 2023 is likely to be a bumper one with growth potentially into the double-digits given the low performance of the second quarter of 2022. Although down to an accounting quirk, this will present an opportunity to signal China’s pro-growth stance and provide further evidence of the strength of recovery to the international business community at a time when the global economy is likely to be struggling for positive narratives. The upcoming Two Sessions in March also provides an opportunity to provide reassuring signals to investors.

If strong economic growth is to be a priority for China over the coming years, then recovery of investor confidence will need to feature high on the list of short to medium-term objectives. Any recovery of sentiment, however, will take more than just one of the factors highlighted above to succeed. China’s management of its economy and business-related policies will play a significant role, but unless the backdrop of heightened geo-political tensions eases, uncertainty will persist and continue to weigh upon decision-making for investments, supply chains and any exposure to China more generally.

Initial signs suggest the cautious optimism for 2023 that is increasingly prevalent among foreign business is not misplaced. For board room-level confidence to return, it will require China to take a sustained, collaborative and transparent approach in addition to the return of long-lasting strength in the economy beyond the inevitable bounce from reopening.

The coming months will show what China’s post-zero covid “reset” will mean for business and perhaps provide an early indication of what to expect over the longer term. Foreign investors will be hoping for more efforts to promote confidence and trust in the operating environment for international business, a strong focus on restoring stable long-term growth and predictability in the Chinese economy, alongside visible efforts to dial down geopolitical tensions.

This article was originally published by Caixin as “Opinion: to Capitalise on Reopening, China Needs to Rebuild Investor Confidence”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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The catalogue identifies industries where foreign direct investment (FDI) will be welcome and treated with favourable policies. Investments in encouraged industries can usually enjoy benefits such as exemption from import duty for the import of equipment to be used by the investing company, or priority land-use rights for certain industrial projects.

The catalogue now lists a total of 1,474 items, a net increase of 239 over the 2020 edition of the catalogue. Further modifications were made to 167 items that were already included. The main changes are as follows:

1. The catalogue continues to focus on manufacturing – notably, manufacturing in IT, advanced machinery, energy conservation, environmental protection and modern transportation – as a key industry through which to encourage foreign investment and upgrade the industrial and supply chain. Many items related to components, spare parts, and equipment manufacturing have been added to the list or expanded.
2. The catalogue continues to guide foreign investment in production-oriented services. It will focus on promoting the integrated development of the service and manufacturing industries and many items in the realms of professional design, technical services, and development have been added to the list.
3. The catalogue continues to optimise the regional allocation of foreign investment and expands the list of incentives in the central and western regions of China* in light of their comparative advantages in terms of labour force and distinctive resources. Foreign investments in western China and Hainan Province may also be able to access a reduction in corporate income tax of up to 15%.

Following the release of the catalogue, some of the industries that boast improved investment opportunities include healthcare (both medical devices and pharmaceuticals), sports (notably winter sports), green and low carbon technologies and vocational education (although not language and arts training schools for primary and secondary school children).

Click here to read the original notice from Mofcom.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

* According to the NDRC, central and western regions include Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shanxi, Gansu, Qinghai, Ningxia, Xinjiang , Inner Mongolia and Guangxi Province.

The post What is China doing to Encourage Foreign Investment in 2023? appeared first on Focus - China Britain Business Council.