The World Economic Forum has identified that today’s global infrastructure demand is estimated at approximately US$ 4 trillion in annual expenditures, with a gap – or missed opportunity – of at least US$ 1 trillion every year. Despite existing supply of private capital, much more is needed to fill this gap. This demand for infrastructure includes soft infrastructure such as healthcare facilities. Thus, in recent years, more and more US healthcare providers are looking for international partnerships or investment opportunities to take advantage of the unique demands abroad. One such area is building senior care facilities in China.
On May 25, a tragic fire broke out at a well-known privately owned nursing home in the central province of Henan, China. Thirty-eight people were killed and six other were injured. It is believed that poor construction and a lack of safety measures were to blame for the fire. This tragedy highlights the urgent need for safe senior care facilities in China. According to population data from the United Nations, adults age 60 and older are projected to represent 19.8% of China’s population by 2025. While this figure is lower than the projected 24.8% for the U.S., China’s one-child policy and the fact that working adults gravitate towards coastal urban centers mean that many seniors in China are living alone, without help for the need care.
At the same time, there is a great lack of quality senior care facilities. Thus, there is significant demand for American senior living companies with expertise in providing both housing and healthcare related services to serve the aging boom in China.
The Chinese government recognizes such a demand and has recently issued circulars and regulations with the goal of encouraging foreign investors in the area of for-profit senior care. The first of which, dated November 24, 2014, the Ministry of Commerce (MOFCOM) and the Ministry of Civil Affairs (MCA), jointly issued a Circular on Various Issues on Foreign Investment in For-profit Senior Care Facilities:
- It clarifies the approval and registration process for foreign investment in for-profit senior care business, specifying that such facilities are subject to approval by MOFCOM, licensing by MCA, and registration with the State Administration of Industry and Commerce. There are also additional permitting requirements at the municipal level thereafter.
- It lists documentation requirements for application and set the time limit for MOFCOM approval (20 days upon acceptance of application).
- It encourages franchising and expansion by foreign for-profit senior care facilities.
- It provides the same preferential treatment currently granted to domestic private senior care facilities. However, it did not specify whether any tax benefit may be available to foreign owned facilities.
Then in February of 2015, the MCA offered additional opinions and regulations to further set the framework for private investment in senior care facilities. Of note are two points below:
- It expressly permits public private partnerships (PPP) to further encourage private investment to take part in conversion of public institutions and enterprises. PPP can be a valuable vehicle for sharing risk with the host government in a foreign country.
- For-profit private senior facilities will be able to set their own prices, though it’s not clear if a PPP facility will be subject to government intervention.
These regulations and circulars are only available in Chinese, but Squire Patton Boggs is happy to provide translations, as well as assistance to anyone interested in exploring the Chinese senior care market.
One example of a recent American entrant into the China market is the recently announced development and management partnership between Greystone Communities, a Texas based senior living company, with CITIC Guoan Investment Co., Ltc. (“CITIC GAI”), a real estate development finance investment firm based in Beijing. In this partnership, announced on May 31, 2015, Greystone would provide management, planning and operations management consulting for CITIC GAI’s portfolio of senior care projects in China.