This article was written by Kim O’Connell and Suzy Madar.
Last month’s signing of the China-Australia Free Trade Agreement (FTA) has opened Chinese doors to Australian health and care providers, giving them unprecedented access to one of the world’s largest markets. However, taking advantage of the opportunities requires careful planning and much of that planning needs to start now.
Opportunities at a glance
The opportunities presented by the FTA are wide-ranging and impact health sector participants in different ways.
For hospital providers, China now offers Australian businesses the opportunity to establish wholly foreign owned hospitals in four provinces (Jiangsu, Fujian, Guangdong and Hainan) and three municipalities (Beijing, Tianjin and Shanghai). Medical and dental service suppliers can also (subject to regulatory approval) establish Australian majority owned joint venture hospitals and clinics with Chinese partners in other areas, provided the majority of medical professionals are Chinese.
In the aged care space, Australian providers may now establish wholly foreign owned aged care facilities in China. Aged care institutions are categorised in the 2015 Chinese Catalogue of Industries for Guiding Foreign Investment as “encouraged” and the Ministry of Commerce and Ministry of Civil Affairs have published notices encouraging the establishment of large scale (including franchised) aged care institutions. New tax incentives and fee waivers are also available to foreign as well as domestically owned aged care facilities.
For R&D service providers, under the FTA Australian companies looking to conduct R&D in China will be permitted both to carry out R&D and to offer R&D services through Australian owned subsidiaries based in China.
Across the spectrum of healthcare, the FTA requires that 95% of Australian exports to China will be tariff free by 2019. Specifically, the existing 4-6% tariffs on pharmaceutical products (including vitamins) will be removed along with the 4% tariffs on orthopedic appliances (currently $56 million in exports) and 10% tariffs on centrifuges (currently $9 million in exports). Tariffs on medical devices will also be eliminated, some immediately and some within five years.
Entering the Chinese market
For healthcare businesses looking to enter the Chinese market, the FTA also provides a number of protections.
Specifically, it includes an Investor-State Dispute Settlement (ISDS) which significantly minimises sovereign risk for Australian businesses in the healthcare space looking to invest and expand in China. An ISDS means that if an investment by an Australian business is adversely affected by actions taken by the Chinese government which are inconsistent with its obligations under the FTA, the Australian business may take action in a neutral international arbitration forum, applying international law.
The FTA also ensures more transparent Chinese intellectual property (IP) systems, improved arrangements for the protection and enforcement of Australian owned IP and simplified prosecution procedures. China agrees to provide Australian businesses with no less favourable treatment than is provided to Chinese nationals so far as the protection of IP is concerned. China has also agreed to make its IP databases publicly available on the internet and to provide opportunities to address Chinese IP protection which may have been inappropriately granted to copycat products seeking to take advantage of existing Australian brand power.
Seizing the opportunity
The China-Australia FTA gives Australian healthcare businesses a competitive advantage when they enter or do business with one of the world’s fastest growing economies. However, the Chinese market is incredibly different from the Australian landscape and there are a number of aspects that Australian business should consider in order to take advantage of the opportunities that this huge population presents.
Unsurprisingly, laws and regulations in China are different to those in Australia. In addition, the rapid growth in the health and aged care sector in China means that businesses entering the market need to be aware that the regulatory landscape can change rapidly. It is important to get timely local advice about the laws and regulations that specifically relate to health and aged care.
There are potentially enormous benefits in partnering with a local Chinese company that is a good fit. Finding the right partner will take time and effort, however a partnership has the potential to circumvent unforeseen obstacles that are more likely to arise in the absence of local knowledge, experience and relationships.
In light of the particular requirements that relate to foreign investment in healthcare (for example, specific investment structures with buy-in from Chinese partners that are required for medical and dental service providers) it is also imperative that Australian businesses seek local advice regarding their investment structure. Tax is another significant consideration.
As is the case when entering any new market, protecting intellectual property is also important. Brand strategy should be well thought out and local brand protection advice should be sought, including in relation to filing trade mark registrations in English and Chinese. Any IP developed in the course of doing business in China should be properly protected, including by filing new patent, design and trade mark applications. Similarly, agreements relating to ownership of IP developed in China should be properly drafted after obtaining local advice. This is particularly important in circumstances where Australian companies partner with local Chinese businesses or invest in established Chinese healthcare providers. Local advice in relation to enforcement of IP rights in China is also essential.
The time is now for Australian healthcare providers
While approval of foreign owned hospitals will be subject to China’s needs, the opening up of the Chinese health industry to foreign investment represents an unprecedented opportunity for Australian businesses given China’s growing middle class and its increased demand for quality healthcare. Similarly, there are significant opportunities for aged care providers as China looks abroad for solutions to address its ageing middle class population.
While Australian health and care providers currently have a window of opportunity, China is currently negotiating FTAs with a number other countries and the concessions given to Australian businesses under the China-Australia FTA will likely very soon become the norm under China’s other agreements. It is important that Australian businesses move quickly and effectively take to take advantage of the preferential market access that has been handed to them.
This article was originally published in Business Spectator as 'The China FTA is just the tonic for Australia's healthcare operators'.