McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyers David Dai, Molly Qin and Mandy Yang. U.S. clients may contact Stephen W. Bernstein, John M. Callahan or Dale Van Demark for additional details and / or questions.
In late 2014, the Ministry of Commerce and the Ministry of Civil Affairs of China jointly issued the Announcement Encouraging Foreign Investors to Establish For-Profit Senior Care Institutions to Engage in Senior Care Services in China. Senior care services are becoming increasingly important as China’s population ages, but the current supply of such services cannot meet the rising demand. Through this Announcement, the Chinese government offers foreign investors favourable conditions to enter the senior care market in China.
On 24 November 2014, the Ministry of Commerce (MOFCOM) and the Ministry of Civil Affairs (MCA) of China jointly issued the Announcement Encouraging Foreign Investors to Establish For-Profit Senior Care Institutions to Engage in Senior Care Services in China. Through this Announcement, the Chinese government encourages more foreign investors (including those from Hong Kong, Macau and Taiwan) to set up for-profit senior care institutions in China, in order to promote the healthy development of China’s domestic senior care services industry.
According to official statistics, the number of citizens over 60 years of age in China reached 194 million by the end of 2012, and is expected to reach 243 million in 2020 and exceed 300 million in 2025. China’s economy and social stability could be negatively affected if senior care issues are not properly addressed. In recent years, China has witnessed the initial formation of a senior care system composed of home-based senior care, community senior care services and senior care institutions. Substantial shortfalls still exist, however, such as the insufficient supply of senior care services and products, market underdevelopment, and development disparities between urban and rural areas.
A lack of relevant regulations and government guidelines was previously a major hindrance to the development of a robust senior care industry. To tackle this issue, MCA issued two regulations in July 2013: the Approving Measures of the Establishment of Senior Care Institutions, and the Administration Measures for Senior Care Institutions. These two regulations allow foreign investors to establish senior care institutions in China in the form of wholly foreign-owned enterprises or joint ventures. On 6 September 2013, the State Council also released Several Opinions of the State Council on Expediting the Development of the Senior Care Services Industry, which encourage non-governmental investors (including foreign investors) to enter the senior care market. MOFCOM and MCA issued the Announcement in order to further implement and clarify the aforementioned regulations and policies.
Procedures to Establish For-Profit Senior Care Institutions
According to the Announcement, if a foreign investor intends to establish a for-profit senior care institution, it must submit an application for establishment of a foreign-invested company to the competent approving authority at the provincial level in the jurisdiction where the institution is to be located. In addition to the general documents required for incorporation (e.g., articles of association, appointment letter to directors), the foreign investor must provide a statement regarding its experience in the senior care industry, along with supporting documents regarding the engagement of a management team with experience in the senior care industry. The competent approving authority will provide approval or disapproval in writing within 20 days of its acceptance of the application. After obtaining approval, the foreign investor must register the institution with the competent registration authority.
Although a foreign-invested senior care institution is legally established after it is registered with the registration authority, it still must apply for a Permit for Establishment of a Senior Care Institution, in accordance with the Approving Measures, before providing senior care services, charging service fees or admitting clients. According to the Approving Measures, senior care institutions should have the following elements:
- Basic living rooms, facilities, equipment and activity space that meet the standards for a senior care institution and the required preventative measures for fires and epidemics
- A qualified management team, professionals and service staff to render services
- Adequate capital to provide services
- More than 10 beds
The foreign-invested institution must submit application documents to the local branch of MCA, and the authority will review the documents and carry out onsite inspection within 20 working days of its acceptance of the application. If all the requirements are met, the authority will issue a permit that is valid for five years.
Approval for a Foreign-Invested Senior Care Institution to Provide Medical Services
The senior care services industry and the medical services industry are closely connected. According to the Announcement, if the business scope of a foreign-invested senior care institution includes medical services, it requires additional approval. This requirement creates uncertainty, because the Announcement does not specify the relevant requirements for provision of medical services. China’s medical services industry falls under the administration of the National Health and Family Planning Commission (NHFPC). Although China’s central government is gradually lifting the limitation on foreign investors’ participation in the medical services industry, some restrictions are still imposed on foreign investors that provide medical services. The manner in which the related government authorities (MOFCOM, MCA and NHFPC) will coordinate with each other in respect of the approval and administration of foreign-invested senior care institutions providing medical services remains to be seen.
Encouragement and Preferential Policies for Foreign Investors
The government currently runs most of the senior care institutions in China. According to the Announcement, foreign investors are encouraged to participate in the reform of state-run senior care institutions. Foreign-invested for-profit senior care institutions are allowed to make domestic investments related to senior care services, and are encouraged to operate a chain of senior care institutions and build a brand of high-quality services.
The Announcement also clarifies that foreign-invested for-profit senior care institutions enjoy the same preferential taxation policies and administrative fee exemptions as domestic Chinese-invested for-profit senior care institutions. For example, according to the Opinions issued by the State Council, care services provided by senior care institutions are exempt from business tax.
Senior care services are becoming increasingly important as China’s population ages, but the current supply of such services cannot meet the rising demand. The Chinese government has now offered foreign investors favorable conditions to enter the senior care market in China.