New Direction of Foreign Real Estate Investment-Elderly Care Institutions

Same as in many western countries, China’s population is aging rapidly. As a consequence of the “one-child policy” that has been implemented in China for decades and also due to various social and economic changes, in the future Chinese citizens may be less likely to take care of their elderly relatives at home. This gives rise to a demand for elderly care institutions.

Most of the current PRC elderly service providers lack sophisticated profit models and advanced service concepts. This creates business opportunities for foreign elderly service providers.

Already in the past, foreign investors were allowed to make investment in the elderly care industry in China. However, the relevant PRC statutory laws were scattered, very general and lacked clear guidance.

On 24 November 2014, the PRC Ministry of Commerce and the PRC Ministry of Civil Affairs jointly promulgated the Announcement of Encouraging Foreign Investors to Establish For-profit Elderly Care Institutions to Engage in Elderly Care Services in China (“Decree No. 81”). Before issuance of Decree No.81, a series of laws and regulations have already been issued recently, both on national and provincial level to expedite the development of the elderly service industry. They include the Administrative Measures for Elderly Care Institutions and the Permitting Measures of the Establishment of Elderly Service Institutions promulgated on 28 June 2013 by the PRC Ministry of Civil Affairs, the Opinions of the People’s Government of Beijing Municipality on Expediting the Development of Elderly Service Industry in 2013 and the Opinions of the People’s Government of Shanghai Municipality on Expediting the Development of Elderly Service Industry and Promote the Establishment of Elderly Care Service System in 2014. The issuance of Decree No.81 has now clarified some key items for foreign investment in elderly care institutions. We highlight below the most significant stipulations introduced by Decree No.81. 

1. Form of Investment 

Foreign investors are encouraged to establish for-profit elderly care institutions independently or as joint venture or cooperation with Chinese companies, enterprises and other economic organizations.

2. Governmental procedures for establishment of foreign-invested elderly care institutions

(1) A foreign investor which proposes to establish a for-profit elderly care institution shall submit an application for establishing a foreign-invested enterprise (“FIE”) to the competent Authority of Commerce on the provincial level. The authority shall make a written decision on approval or disapproval within 20 days after acceptance of the application. According to the information of the PRC Ministry of Commerce, the establishment of a foreign-invested elderly care institution shall meet the requirements stipulated in the Permitting Measures of the Establishment of Elderly Service Institutions. This means that elderly care institution

• shall have a name, domicile (the location of the elderly care institutions shall be in compliance with the plan for setting up elderly care institutions issued by the relevant local government), articles of association and management system;
• shall provide basic living rooms, facilities and equipment and activity space in compliance with specifications and technical standards relating to elderly service institutions, national environmental protection provisions, fire protection provisions and health and epidemic prevention requirements;
• shall have qualified administrative staff, professionals and service staff to render services;
• shall have the funds available to match the service items and the scale;
• shall have more than 10 beds; and
• shall need other conditions stipulated by laws and regulations.

The statutory law does not require special qualifications of foreign investors, e.g. experience in this sector. Neither does it provide for minimum registered capital contributions. However, local approval practice varies. For instance, in Shanghai, a foreign investor is required to submit evidence of operational funds of at least 10,000 RMB per bed in the planned elderly care institutions.

(2) Upon approval, the foreign investor will obtain an Approval Certificate of Foreign-invested Enterprise with the wording "operation under the Permit for Establishment of Elderly Care Institutions" added in the business scope. 
(3) The foreign investor shall then handle the formalities for registration of the foreign-invested enterprise within one month with the Administration of Industry and Commerce. 
(4) After issuance of the business license, the FIE shall apply for a Permit for Establishment of Elderly Care Institutions in accordance with the relevant provisions of the Permitting Measures of the Establishment of Elderly Care Institutions issued by the PRC Ministry of Civil Affairs. 

3. Domestic investments related to elderly care service

Decree No.81 also clarifies that foreign-invested for-profit elderly care institutions may engage in domestic equity investments in elderly care service. This aims at encouraging foreign investors to develop an entire chain of elderly care institutions. 

4. Preferential policies 

Foreign-invested for-profit elderly care institutions shall enjoy the same preferential tax policies and policies on administrative and institutional fees reduction and exemption as domestic ones. Such preferential policies include exemption of business tax on elderly care services and reduced public utility fees. 

5. Medical and health services

By means of establishment of medical institutions or by cooperation with the surrounding medical institutions, elderly care institutions may also provide medical services for the aged. Where an elderly care institution establishes a medical institution, it shall apply for a Medical Institution Practicing License.

Elderly care services are a business sector which is likely to become a growth sector in China in the future. Decree No. 81 further opens the door to this sector for foreign investors.