By Rainy Yao

SHANGHAI — Today, there are more than 200 million senior citizens in China. Fifty percent of them are “empty-nesters” living alone in rural areas, and more than 30 million are disabled. Meanwhile, the number of beds in nursing homes throughout the country was only 3.9 million in 2012. It is estimated that by 2050, the elderly population will total 400 million, accounting for one-third of the country’s total population. As a result, nursing homes are poised at the frontier of emerging investment opportunities in China.

Alberto Vettoretti of Dezan Shira & Associates comments, “I believe that in several years, the health care sector and its related industries (from hospitals to elderly care centers, and from ambulance services to post-injury rehabilitation treatments) will be one of the largest business sectors of the Chinese economy – possibly even larger in size than property. While property investment dictated the last 10 years of whopping development in the Chinese economy, perhaps in the next 10-15 years, health care will take up the helm, or certainly be one of the top 3 drivers of China’s economy.”

Investment opportunities

Despite a dire need of nursing homes, China’s lack of management techniques and elderly care professionals have made it difficult for domestic private nursing homes to provide high-quality services. “State-owned nursing homes funded by the government cannot meet the rising demand for care. We hope that this huge potential market will attract more foreign investment,” said Zhuang Yuequn, director of Guangzhou’s civil affairs authority.

The Guangzhou municipal government has announced that by the end of 2015, the number of beds in nursing homes in the province will achieve total 56,000 (40 beds for every 1,000 seniors). Of this total, 40,000 beds are expected to be provided by private nursing homes.

According to the “Catalog of Industries for Guiding Foreign Investment” released by the Ministry of Commerce in 2011, foreign investors are highly encouraged to invest in China’s elderly care institutions. Eligible foreign investors can enjoy equal treatment as Chinese domestic investors with regards to the Catalog’s requirements. Private nursing homes, including foreign-invested nursing homes shall be exempt from business tax (BT).

Incentives

In September 2013, the State Council released the “Opinions on Accelerating the Development of the Elderly Care Industry and Pension System (Guo Fa [2013] No.35),” indicating the importance accorded to the development of the industry by the Chinese government. In response, several locales including Shanghai, Guangzhou, Jiangsu and Beijing have rolled out related incentives such as preferential land policies, tax exemptions and fiscal support for construction projects.

For example, on April 21, 2014, the Jiangsu provincial government held a press conference on newly released regulations concerning the construction of nursing homes and the pension system. It was announced that by 2020, a unified stipend standard will be applied to both domestic and foreign-invested nursing homes. In addition, the Jiangsu government already provides the following preferential policies for investors:

Elderly care services such as entertainment and medical service shall be exempt from business tax (BT);

Eligible non-profit nursing homes in cities shall be exempt from corporate income tax (CIT), property tax and land use tax; and

Non-profit nursing homes shall be exempt from administrative fees; other nursing homes shall pay administrative fees at 50 percent of their normal rate.

Further, a fiscal reward of RMB 1 million is offered to innovative enterprises engaged in the provision of elderly care services.

Set-up procedure

In June 2013, China’s Ministry of Civil Affairs (MCA) released the “Measures on Establishment of Nursing Homes (MCA Decree No.48),” which stipulates that foreign organizations and individuals may invest in China’s nursing homes (both wholly foreign-owned nursing homes and foreign-invested joint ventures are permitted). Foreign investors seeking to establish a nursing home must apply to the local MCA, and the nursing home to be established should meet the following conditions:

Has an official name, address, a sound management system and a complete articles of association;

Meets the environmental protection requirements and other technical standards stipulated by relevant laws and regulations;

Has professional and technical personnel;

Has over 10 beds; and

Has enough capital to sustain operations.

Investors are also required to submit the following documents to the local MCA:

An application form;

Proof of the applicant’s legal authorization;

The company’s official name and articles of association;

A housing lease contract or certificate of property rights;

The names, health certificates and identification documents of all management personnel and professional and technical personnel;

The approval of relevant authorities such as the health and quarantine department and fire department;

Capital verification certificate; and

Other materials required by relevant laws and regulations

The application will be processed within 20 workdays of receipt. If successful, the company will be issued a permit to operate the nursing home, which will be valid for five years.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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