(Adds analyst comment, more context)
By Adam Jourdan and Koh Gui Qing
SHANGHAI/BEIJING Aug 27 China will allow foreign investors to wholly own hospitals in seven cities and provinces, further opening up the country's fast-growing private hospital sector.
The cities of Beijing, Tianjin and Shanghai and the provinces of Jiangsu, Fujian, Guangdong and Hainan will take part in the pilot test that was launched in July, the Ministry of Commerce said in a statement on Wednesday.
The private healthcare sector is a magnet for investors with the number of private hospitals shooting up in the last decade as Beijing looks to take the pressure off its hard-hit state run system.
"There is so much interest and a lot of money just waiting to have the opportunity to invest. It's not only a huge and growing market, but also the level of care is not that high, meaning there's a huge unmet need," said Simon Li, Shanghai-based managing director at Kantar Health.
China's healthcare spending is set to hit $1 trillion by 2020, according to McKinsey & Co, a major draw for hospital operators such as Singapore-based Raffles Medical Group Ltd , Malaysia's IHH Healthcare Bhd and U.S.-listed Chindex International Inc.
Beijing has been slowly opening the door to overseas money, previously allowing foreign investors to own 70 percent stakes in hospital joint ventures. Hong Kong and Macau, autonomous regions of China, and Taiwan all permit foreign investors to fully own hospitals.
Beijing has also made moves to allow doctors to work more freely in the private sector, part of a drive to enable overseas providers to take on a broader role. Currently, foreign players focus more on specialist areas such as maternity care.
"With more investment allowed by foreign players and greater freedoms for doctors, this will enable foreign operators to get more into primary care and the mainstream market," said Li.
The attraction is clear. There were 11,300 private hospitals in China last year, a massive rise from just 3,200 in 2005, according to a Deutsche Bank report in June. It added that a further 8,000 public hospitals were likely to be privatised over the next 5-10 years.
Approvals for foreign-owned hospitals will be overseen by provincial governments, the Ministry of Commerce said, adding that only investors from Macau, Taiwan and Hong Kong can practice traditional Chinese medicine (TCM).
The Ministry of Commerce announcement did not include any requirements for a minimum size of foreign investment.
Chinese hospitals suffer from a lack of funding and a steep gap between urban and rural care, often leading to high rates of bribery and simmering tension between patients and doctors.
Widespread graft has made it harder for China's poor to get access to healthcare, despite Beijing ordering hospitals to not turn away patients who need emergency treatment.
The move is also part of sweeping plans to reform the world's second-largest economy to give private and foreign investors greater access to enhance efficiency, technological know-how and coverage for basic services such as healthcare.
China had promised earlier this year to relax limits on foreign investment in hospitals on the mainland in a healthcare reform plan for 2014. In May, the government also eased restrictions on foreign investment in joint-venture hospitals. (Additional reporting by Shao Xiaoyi in BEIJING; Editing by Jacqueline Wong)