Chances in China’s Healthcare & Pharmaceutical market: Opportunities and legislation

China is one of the largest and fastest growing healthcare service markets in the world. According to the latest Health Care Outlook published by Deloitte, China’s annual expenditure is projected to grow at an average rate of 11.8 percent a year in 2014-2018, reaching $892 billion by 2018. Despite these positive figures, China’s health care spending still accounts for a lower percentage of the country’s GDP than that og Organization for Economic Co-operation and Development (OECD) countries. China also is facing the challenges of growing aging population, and it’s rapidly increasing middle class increasingly calls for better and more advanced universal health care and insurance.

In recent years China has begun to expedite the opening up of the healthcare service sector to both private and foreign investors, and in general restrictions have been lifted or eased. The ceiling of foreign participation in Sino-foreign medical institutions has recently been removed. Wholly foreign owned hospitals are now allowed in three cities (Beijing, Tianjin and Shanghai) and four provinces (Jiangsu, Fujian, Guangdong and Hainan) on a pilot basis.

China’s healthcare providers are mainly hospitals, primary healthcare clinics and other medical institutions. China nowadays allows wholly foreign owned investment structures (100%) in the  healthcare and senior care sectors, but for certain specific types of primary care, clinics and home healthcare, the government still restricts access under a regulatory scheme. Therefore, foreign companies interested in investing in China should check carefully whether their planned activities are allowed or not.

For foreign investors, there are four ways to invest in the Chinese healthcare market: 

  • Green Field Investment – an investor can set up a private medical institution.  As discussed above, this is possible, but establishment requires the investor to inject a large amount of capital upfront and the procedure of setting up can take up considerable time. Therefore cash flow will be an important consideration.
  • Acquisition – an investor can acquire an existing private hospital to achieve a fast entry but upfront capital expenditure can be significant. A well-prepared Due Diligence report is indispensable after the investor decides to enter the market by acquisition.
  • Privatization – an investor can combine its investment with the privatization of a public hospital. As a consequence, the investor can obtain an existing brand and patient pool, however  many uncertainties  in negotiating with local government will be required.
  • Contract Management – It is commonly used that an investor enters into a range of agreements with the hospitals and operates them for a management fee on an “entrusted” basis.=

Relevant Laws:

New Chinese Drug Administration law:

In April 2015, China amended its Drug Administration Law which simplifies the procedure for foreign investors to set up a company in the pharmaceutical sector. For instance, in the past the investors who intended to manufacture or distribute pharmaceuticals in China must apply for Drug Manufacturing License or a Drug Distribution License before applying for a business license. The new Drug Administration law stipulates the possibility of applying for the licenses after obtaining a business licence. It is also worthy of knowing that the amended law completely removed the price controls on medicines, including price fixing and guidance.

Chinese Advertising law:

When entering the pharmaceutical market in China, companies will probably consider promoting their products through advertisements and social media. It is important to be aware that the Chinese Advertising Law regulates this strictly. Some specific items cannot be advertised. For example, advertising for anaesthetics, psychotropic drugs, toxic and radioactive drugs for medical use is strictly forbidden;advertising for prescription drugs is only allowed in professional medical journals; health food products cannot be advertised as medical products, etc. The content of advertisement also needs to meet certain requirements. Any advertisement for drugs, medical treatment or medical devices may not contain, for example, assertions or assurances regarding safety and efficacy, information relating to recovery rates or efficiency, or comparison with other medical products etc.

If you need more advice on this subject, please feel free to contact us.