What healthcare sectors are restricted on China’s Negative List?

What Healthcare Sectors Are Restricted on China’s Negative List?

China’s Negative List for Foreign Investment (外商投资准入特别管理措施, commonly known as the “Negative List”) is the primary regulatory instrument governing foreign participation in the Chinese economy. Updated annually since 2018, the Negative List specifies industries and sectors where foreign investment is either prohibited or restricted — and healthcare has consistently been one of the most heavily regulated sectors. The 2024 edition of the Negative List (effective November 2024) reduced the total number of restricted items to 27 — a steady reduction from 93 items in 2017. However, healthcare restrictions remain significant, reflecting China’s strategic interests in medical sovereignty, data security, and domestic bio-manufacturing capacity. Foreign companies and investors must understand which healthcare sectors are restricted, what forms of participation are permitted, and how recent liberalizations in pilot free trade zones create alternative entry pathways. China’s healthcare market, valued at approximately $1 trillion in 2024, remains one of the world’s most attractive investment destinations — but entry strategy must be carefully calibrated to the regulatory environment.

Short answer: The 2024 Negative List identifies six healthcare sub-sectors with foreign investment restrictions: (1) medical institutions — restricted to joint ventures (with recent pilot exceptions in free trade zones); (2) human stem cell and gene therapy — prohibited for foreign investment; (3) Traditional Chinese Medicine (TCM) processing — prohibited for foreign investment; (4) radiotherapy equipment manufacturing (high-energy linear accelerators, proton/ion therapy systems) — restricted to joint ventures; (5) human blood, organ, and tissue services — prohibited for foreign investment; and (6) human genetic resource collection and storage — restricted, with foreign companies required to partner with Chinese institutions. In the 2024 edition, the most significant change was the removal of the “foreign majority ownership limitation” for medical institutions in all free trade zones — a landmark liberalization that allows wholly foreign-owned hospitals in FTZs for the first time since China’s WTO accession in 2001.

The Negative List Framework

The Negative List operates through three categories of restriction:

Medical Institutions — The Biggest Liberalization in 2024

Short answer: Foreign investment in medical institutions — including hospitals, clinics, and outpatient centers — was historically restricted to joint ventures with a Chinese partner. The 2024 Negative List removed this restriction for all free trade zones (FTZs), allowing wholly foreign-owned hospitals in FTZs for the first time. Outside FTZs, the joint venture requirement remains.

What to know: The medical institution restriction has evolved significantly:

• Pre-2024 (nationwide): Foreign investors could only establish medical institutions as joint ventures (JV), with no explicit cap on foreign ownership (the previous 70% foreign ownership limit was removed in the 2014 edition). In practice, most foreign-invested hospitals operated as JVs with local governments, state-owned enterprises, or private Chinese hospital groups.
• 2024 revision (FTZs only): The Negative List now permits wholly foreign-owned hospitals in all 22 free trade zones (including Shanghai FTZ, Guangdong FTZ, Tianjin FTZ, Fujian FTZ, Hainan Free Trade Port, and others). This is a landmark change — the first time wholly foreign-owned medical institutions have been permitted in China since the 2001 WTO accession. Implementation measures detailing requirements for capital, land use, and operational standards are expected from the National Health Commission (NHC) and Ministry of Commerce in 2025.
• Practical considerations: Even with the FTZ liberalization, foreign hospital investors face significant hurdles: (a) land-use rights for medical facilities must still comply with local zoning regulations (land is typically allocated through public bidding); (b) hospital licensing requires approval from both the provincial NHC and the NMPA for medical device and drug dispensing; (c) foreign doctors must obtain Chinese medical practice licenses, a process that can take 6-12 months; and (d) NHC approval is required for the establishment of any foreign-invested medical institution with more than 200 beds.

Human Stem Cell and Gene Therapy — Prohibited

Short answer: Foreign investment in human stem cell research, gene therapy development, and related clinical applications is prohibited under the Negative List. Foreign entities cannot establish, acquire, or invest in Chinese companies engaged in these fields.

What to know: The prohibition applies to:

• Stem cell technologies: Research, development, and clinical application of embryonic stem cells, induced pluripotent stem cells (iPSCs), adult stem cell therapies, and stem-cell-derived products.
• Gene therapy: Gene editing (CRISPR, TALEN, zinc finger nucleases), gene replacement therapies, oncolytic virus therapies, CAR-T cell therapies with genetic modification (note: CAR-T without gene editing is regulated differently — see below).
• Exceptions and gray areas: CAR-T cell therapy without heritable genetic modification has been treated as a pharmaceutical product (not a prohibited stem cell/gene therapy) by the NMPA and can be developed by foreign companies through the drug registration pathway. However, foreign companies developing CAR-T therapies should confirm their classification through the CDE pre-submission consultation process, as the regulatory boundary between “gene therapy” and “cell therapy with genetic modification” continues to evolve. Additionally, foreign companies can still collaborate with Chinese institutions through technology licensing, research collaboration, and material transfer agreements — as long as no equity investment is involved.

Traditional Chinese Medicine (TCM) Processing — Prohibited

Short answer: Foreign investment is prohibited in the processing of Traditional Chinese Medicine (TCM) — specifically, the processing of TCM decoction pieces (中药饮片), TCM formula granules (中药配方颗粒), and proprietary TCM preparations (中成药) where the processing technology is classified as “protected state secret” (国家保护品种).

What to know: The TCM prohibition has been in place since the earliest Negative List editions and reflects China’s strategic protection of TCM intellectual property. The prohibition covers:

• TCM decoction piece processing: The cutting, drying, roasting, and preparation of raw herbal materials into decoction pieces — a process that involves processing techniques that are often classified as trade secrets.
• TCM formula granule production: The extraction and concentration of TCM decoctions into granule form — this sector has grown rapidly since the NMPA opened formula granule management to more participants in 2021, but foreign companies remain excluded.
• TCM proprietary preparations with state secrets: An estimated 20-30 TCM proprietary preparations are classified as “state secret” products, and foreign companies cannot manufacture or acquire the IP rights to these products.

However, the prohibition does NOT extend to: (a) TCM raw material trading and import/export (foreign companies can source and export TCM materials); (b) TCM research — foreign pharmaceutical companies can conduct TCM drug discovery and development research under a CRO model; (c) TCM modernized formulations that do not use the protected processing technologies; and (d) TCM retail and distribution (foreign-invested pharmacies can sell TCM products).

Radiotherapy Equipment Manufacturing — Restricted

Short answer: Foreign investment in the manufacturing of high-energy radiotherapy equipment — including medical linear accelerators (LINACs), proton therapy systems, heavy ion therapy systems, and gamma knife radiosurgery systems — is restricted to joint ventures with Chinese partners.

What to know: The radiotherapy equipment restriction covers:

The restriction applies to the manufacturing stage only — foreign companies can freely import and sell radiotherapy equipment that is manufactured outside China, subject to NMPA registration. The restriction primarily affects foreign companies seeking to establish onshore manufacturing capacity in China for cost reduction, supply chain efficiency, or Chinese government procurement eligibility.

Human Blood, Organ, and Tissue Services — Prohibited

Short answer: Foreign investment is prohibited in services related to human blood, organs, and tissue — including blood collection and supply stations, cord blood banks, organ transplantation services, human tissue storage and distribution, and human sperm/egg banks.

What to know: This prohibition reflects China’s strict approach to human biological resource management and ethical standards. The prohibition covers: (a) blood collection and supply services — foreign companies cannot operate blood banks or blood collection stations; (b) organ transplantation medical services — foreign investment in hospitals or clinics offering organ transplantation is prohibited; (c) cord blood and stem cell banking — foreign entities cannot operate cord blood banks or tissue storage facilities (several domestic companies, including Beijing Cord Blood Bank and Shandong Cord Blood Bank, serve this market); and (d) human reproductive services — foreign investment in sperm banks, egg banks, and related services is prohibited. However, foreign companies CAN supply: blood testing diagnostic reagents, organ preservation solutions, and tissue-engineering scaffolds and biomaterials (classified as medical devices, not services).

Human Genetic Resource Services — Restricted

Short answer: Foreign companies are restricted from independent collection, storage, and sale of Chinese human genetic resources (HGR). Under the Human Genetic Resource Management Regulations (2023), foreign entities must partner with Chinese institutions for HGR-related activities and cannot be the sole applicant for HGR project approvals.

What to know: The HGR restriction, while not explicitly listed in the Negative List’s “prohibited” column, functions as a significant operational restriction for foreign companies in genomics, precision medicine, and biobanking. Key implications include:

• Biobank restrictions: Foreign companies cannot independently operate biobanks or human genetic resource storage facilities in China. Any collection and storage of Chinese genetic samples must be co-managed with a Chinese partner institution.
• Research collaboration requirement: Foreign companies conducting genomic research in China must partner with a Chinese university or research institution as the project lead. The international partner cannot be the primary applicant for HGR regulatory approvals.
• Data export restrictions: As detailed in FAQ-018, genetic data can only be exported under specific conditions and with MOST approval. This applies to foreign companies in diagnostics, drug development, and research that generate Chinese genetic data.
• Strategic implications: The HGR restriction has significantly affected foreign precision medicine and genomics companies (including Illumina, BGI international partnerships, and Foundation Medicine). Most have adopted a “China-for-China” model, where Chinese genetic data is processed, stored, and analyzed within China under the supervision of a Chinese partner.

Pilot Free Trade Zone Exceptions

Short answer: The free trade zones (FTZs) provide a more liberalized regulatory environment for foreign healthcare investment, building on the “Negative List minus FTZ exception” principle. The 2024 FTZ exception list offers significant liberalizations beyond the national Negative List, particularly for medical institutions and value-added telecommunication services (which affect telemedicine).

What to know: The FTZ exceptions relevant to healthcare include:

1. Wholly foreign-owned hospitals (new in 2024): All 22 FTZs and the Hainan Free Trade Port now allow wholly foreign-owned medical institutions — a major departure from the nationwide JV requirement. Implementation measures are expected from the NHC in 2025, covering capital requirements (likely ¥100-200 million minimum for a general hospital), land-use requirements, and operating standards.
2. Telemedicine and value-added telecommunications: FTZs in Shanghai, Beijing, Tianjin, and Hainan allow foreign majority ownership (up to 100%) in value-added telecommunications services — which cover telemedicine platforms, remote monitoring, and health data transmission services. This creates opportunities for foreign telemedicine companies to operate directly in FTZs.
3. Medical device maintenance and repair: The 2024 Negative List removed the restriction on foreign investment in medical equipment maintenance, calibration, and repair services — opening this sector (previously restricted under the “professional services” category) to full foreign participation nationwide.
4. Hainan Boao Lecheng Pilot Zone: The Lecheng International Medical Tourism Pilot Zone in Hainan operates under a special regulatory framework that allows: (a) use of imported drugs and medical devices not yet approved by the NMPA; (b) expedited NMPA registration for products used in Lecheng; and (c) foreign medical institutions with simpler licensing requirements.

Strategic Considerations for Foreign Healthcare Investors

Short answer: Foreign healthcare companies should develop a China entry strategy that matches their sector to the appropriate regulatory pathway — JV (radiotherapy equipment, non-FTZ hospitals), wholly foreign-owned (medical device manufacturing, diagnostics, pharmaceuticals, CROs), FTZ-based (hospitals, telemedicine, AI diagnostics), or technology licensing (gene therapy, stem cells, TCM).

What to know: Based on the regulatory landscape, the following strategic approaches are recommended by sector:

Recent Trends and Outlook

Short answer: The trend in healthcare Negative List restrictions has been steadily liberalizing — from 93 restricted items in 2017 to 27 in 2024 — and the 2024 FTZ hospital liberalization is the most significant single opening since China’s WTO accession. Foreign investors should expect continued liberalization through 2027, particularly in the medical institution and radiotherapy sectors, but continued protection of stem cell/gene therapy and TCM processing.

What to know: Looking forward, foreign healthcare investors should monitor: (a) the 2025 edition of the Negative List (expected November 2025) — which may expand the FTZ hospital exception to additional cities or nationwide; (b) the NHC’s implementation measures for wholly foreign-owned hospitals (expected mid-2025); (c) potential expansion of the Negative List to new sectors (the Cybersecurity Review Measures and Data Security Law have created de facto restrictions in healthcare data that are not formally part of the Negative List); and (d) the treatment of China-added value vs. wholly foreign investment — the “mustard seed” investment threshold for national security review (which affects healthcare M&A transactions above ¥100 million or involving sensitive healthcare data) has become an increasingly important entry barrier.

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