At the Asia-Pacific Economic Cooperation (APEC) summit in Beijing in November, the US and China agreed for a trade pact to eliminate global tariffs on high-tech goods including medical equipment.

This is a major breakthrough in negotiations over the update in the World Trade Organisations’ 1996 Information Technology Agreement (ITA). It is anticipated that an expanded ITA would eliminate tariffs on about US$1 trillion worth of global sales on high-tech products.

We anticipate this reduction of tarriffs would provide better market access for high-tech products leading to increased investments, in particular for the life sciences and healthcare sector in China.

China also recently announced a proposal to reduce restrictions for foreign investment in the lifesciences and healthcare sector. The proposals will allow for foreign investment projects for new areas such as senior care institutions and special medicine cold-chain distributions.  Please read below to learn more about this development.

Investors are encouraged to see these developments in the broader context of the booming China lifesciences and healthcare market. This sector has gained significant momentum in light of recent reforms and gradual opening up to foreign investors.

New 2014 Catalogue on foreign investment reduces restrictions for foreign investment in life science and healthcare sector

On November 4, 2014, the National Development of Reform Commission (NDRC) published a draft of a new Foreign Investment Industrial Guidance Catalogue (Catalogue) for comment. The Catalogue is a roadmap for foreign investment in China. It classifies all foreign investment projects into one of three categories: Encouraged, Restricted or Prohibited, based on the products that the foreign invested enterprise (FIE) will produce or the services that the FIE will deliver. Industries not listed are considered to be in a default category normally referred to as Permitted, and are open to foreign investment unless otherwise specified in other PRC regulations.

The Catalogue has been amended several times after its promulgation in 1995. The most recent update was in December 2011.

Compared with the current version, the proposed new Catalogue significantly reduces the range of industries and activities in which foreign investment is either restricted or prohibited in China. For foreign business in the life science and healthcare sectors, the draft new Catalogue is certainly exciting news and will create more opportunities and momentum for their participation in these rapidly-growing sectors of the Chinese economy.

The table below sets out the proposed changes in relation to life science and healthcare sectors in both 2011 Catalogue and the draft new Catalogue.

Item 2011 Catalogue Proposed changes
Encouraged Cultivation of traditional Chinese medicines Limited to equity/ contractual joint venture The restrictions on joint ventures are removed. Wholly foreign ownership will be allowed.
Production of biology vaccine Production of biology vaccine Removed from the Encouraged category
Development and manufacturing of electronic teaching aid for traditional Chinese medicine based on computer information technology (including voice, light, electricity, touch etc.), virtual pathology and physiology medical models NA Newly added
Special medicine cold-chain distribution and relevant technical service NA Newly added
Senior care institutions NA Newly added
Restricted Medicine and biopharmaceutical manufacturing
  • Production of chloramphenicol, penicillin G, lincomycin, gentamicin, dihydrostreptomycin, amikacin, tetracycline hydrochloride, oxytetracycline, medemycin, kitasamycin, ilotyin, ciprofloxacin and offoxacin
  • Production of analgin, paracetamol, Vitamin B1, Vitamin B2, Vitamin C, Vitamin E, multivitamin and Oral calcium production
  • Production of vaccines included in the State Immunization Plan
  • Production of material medicines for addiction narcotic and Class A psychoactive drug (Chinese partner holding a majority stake)
  • Production of blood products
Removed from the Restricted category, which means they are now permitted
Medical institutions NA (in practice, foreign investment is permitted subject to joint venture requirements) Newly added (with shareholding restriction of being limited to contractual joint venture)

The proposed changes are encouraging for drug manufacturers, healthcare service providers, medical device/equipment suppliers and even IT/research organizations. The draft new Catalogue is open for public comments between November 4, 2014 and December 3, 2014. We do encourage stake-holders in the life sciences and healthcare sectors to comment on it and communicate with the NDRC about their concerns and wishes. We will keep monitoring developments and provide a more detailed update once the new Catalogue is officially published.

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