Foreign investors interested in China’s senior housing space gained another foothold with a new law jointly issued by China’s Ministry of Commerce and Ministry of Civil Affairs regarding rules and procedures for the establishment of for-profit senior care facilities.
“Even though the notice only applies to investors from Hong Kong and Macau, its impact is likely to be significant, as the Notice reveals some signals and trends from the government on how to encourage and regulate the foreign investor—a large portion of private investors—in the senior care industry,” writes Michael Qu Qin, a lawyer with Co-effort Law Office, in the China Senior Housing and Care newsletter.
In December 2012, the Chinese government issued an amendment to the law Protection of Elderly’s Rights and Interests. The Mainland and Hong Kong/Macau Closer Economic Partnership Arrangement continues to be implemented, with help from the new notice which addresses an outdated laws that limit foreign investments to Sin-foreign joint ventures, said Qin.
Under the new notice, the Wholly Foreign Owned Enterprise (WFOE) model is “expressly opened” for Hong Kong and Macau investors.
“Looking at the legislation reform policies for foreign-invested medical institutions, we expect the trend to be the same here—the door for Hong Kong and Macau investment opens first, followed by investment from foreign countries,” he said.
Legislators are realizing the necessity of regulating merger and acquisition activities in the senior care facilities sector.
The notice “adds some much-needed clarification to the question whether a WFOE can own and operate a senior living facility in China,” said Joseph Christian, a fellow at the Harvard Kennedy School in Cambridge, Mass., to Qin. “Until now, there has been some inconsistency between central government policy on this issue and local practice, which has created great uncertainty on the part of investors. We hope that this policy will be extended from Hong Kong and Macau investors to foreign investors, and there is no reason why that should not happen, and happen soon.”
The new law also expressly prohibits facilities from providing residential living options disguised as senior care, according to Qin, who calls it “a signal that the government wants to distinguish the policy between care service facilities and independent senior living communities (usually developed as real estate projects).”
The real challenge for the government, he says, will be how to identify the difference between these two modes, which will then lead to another topic of pricing and sales for each model and how it will be regulated.
Access the China Senior Housing and Care publication for more information.
Written by Alyssa Gerace