Shanghai Free Trade Zone Overview
The Shanghai Free Trade Zone Pilot (Shanghai FRZ) will be officially launched this coming Sunday (29th September) and the first batch of fifty-five new policies governing the Shanghai FTZ will be announced the same day.
The proposed FTZ encompasses 28 km2 and is divided into four administration zones:
The Shanghai Free Trade Zone has been a long time coming. It was first proposed in 2003 and finally got needed approval this past August. Like many other Free Trade Zones, the one in Shanghai will most immediately impact the financial industry. The goal is to cement Shanghai as the depository and trade center for off-shore RMB. The fact that Singapore is presently positioned itself as the premiere offshore RMB hub is too shameful for the Chinese psyche to take.
Shanghai Free Trade Zone and Healthcare Opportunities for Foreign Capital
Caixin News has listed the investment areas that will be opened up in Shanghai Free Trade Zone. Three of these will concern players in the healthcare industry:
- Foreign Health Insurance companies will be allowed to operate within the zone.
- Leasing of capital equipment will be allowed
- WOFE Hospitals are being contemplated within the zone
Commercial Health Insurance:
In 2012, commercial health insurance only accounted for 1.4% of the total amount of medical claims (source of information is confidential). The low market share dates back to 1993 when Commercial Health Insurance was defined as “insurance that compliments the social security system,” with much emphasis place on the “compliments” part of the definition in official discourse. In the US people only use their government insurance after 65, while in China it can be used at any stage of life. Take me for instance, I am in my late 20s and can get partial reimbursement for my medical expense if my accumulated medical spending surpasses 1800RMB. To learn more about the social security system, please check this CLSA 2012 report.
Based on my conversation with a health insurance broker, most people in China are first alerted to the existence of commercial health insurance when they choose a hospital for child birth. The price tag for child delivery is not insignificant, yet when it comes to child birth, people care only about the best circumstances that they can afford. To be able to afford a child birth session at United Family Hospital, the most well-known foreign hospital in Beijing, people search online and realize that they can purchase insurance and the insurance company will pay for the bill.
Since financial free up would be the raison d’etre of the Shanghai FTZ, commercial health insurance would likely to see its fair share of market liberalization. For more detailed reporting on FTZ’s impact on health insurance, please read this article from China Insurance.
Leasing of Medical Equipment:
By simply registering an office or enterprise in the Pilot Free Trade zone the ability to enjoy tax breaks, in the form of lower or waived import taxes and 15% lower VAT. In the healthcare context, an example is given that specifically mentions these special benefits accruing to those who wish to lease medical equipment.
Streamlining registration for WOFE Hospitals:
Though technically WOFE hospitals are allowed, the registration process is too cumbersome in practice; and so far, there have been exactly zero hospitals funded fully with western money. There is one Taiwanese hospital, but this was established under the ECFA special treaty.
The free trade zone is likely to encourage more western people to work in Shanghai, because foreigners within the FTZ will be subject to lower income taxes. Their presence would encourage the development of western hospitals and it is likely that licensing processes would be streamlined for WOFE hospitals in order to make this happen. A similar streamlining process was observed in the Shen Zhen Qian Hai Free Trade Zone, but in that case, the hospitals that were being wooed were from Hong Kong.
More Resources for learning about the Shanghai Free Trade Zone:
To understand more of the free trade zone, Caixin has some nice reporting that provides a detailed analysis. Also, tune in to the news conference on the 29th, when much more official information is expected to come out. I will reporting back on what I learned at that news conference.