State capital will gradually be reduced from public hospitals, which is regarded as a major step in the reform of China's medical system.

Private investors, both Chinese citizens and foreigners, will soon be allowed to invest in an area that was previously forbidden to them.

Song Ruilin, director with the science, education, culture and hygiene law department of the Ministry of Health disclosed the news recently during the opening ceremony of Hospital Management Training Course in China Europe International Business School.

Under the new policy which is expected to be issued in the next few months, the State plans to maintain at minimum a 51 per cent stake in public hospitals.

"The ongoing reform of property rights will allow more capital into China's medical service segment, in a bid to expand the hospital network to meet people's ever-increasing medical demands," said Lei Haichao, a researcher with the Beijing Medical Economy Research Institute.

Meanwhile, the market-oriented reform is expected to make public hospitals' operation more flexible and allow operators to improve management and upgrade services in line with market principles.

Song emphasized that gradual withdrawal of State capital did not mean the government would give up its control in the medical sector.

"On the contrary, the aims of the move are to concentrate the government's efforts in further improving civil medical services and optimizing medical resources, as well as setting up a sound structure with hospitals at various levels to meet the different demands of the people," said Song.

In 2000, the Ministry of Health divided the nation's hospitals into two categories, profit and non-profit.

To adjust to the new rule to be issued, the classification will be elaborated.

According to Song, a government hospital must be non-profit and the hospitals with mixed ownerships can be profit or non-profit. Soon to emerge as a result of upcoming changes will be private hospitals, including foreign-funded ones.

"Of the total, around 20 per cent are to be run by the government as non-profit hospitals," said Song.

Though the emerging policy seems to be beneficial for private investors, some large investment institutes are very cautious.

An investment management company manager, whose firm has pooled money into the medical service sector, said that a group of their counterparts took a wait-and-see attitude to public hospital property rights reform.

"As private funds have not been allowed to be invested in public hospitals yet, we had to adopt a trusteeship model to operate a public hospital last year," said the manager, who declined to be named.

However, the hospital that was operated under the trusteeship model did not perform as well as the company expected due to a vague policy on equity, fund-raising channels and social responsibility.

"Supply and demand of medical service capital will increase with the new policy. However, if the supplementary regulations cannot be followed to guarantee the non-barrier entry and withdrawal of the private fund and clarify the profit distribution mechanism, the investors may hesitate," said the manager.

His company also has taken the initiative to set up a private hospital. However, due to the comparably high tax on such medical institutes, they gave up. "A private hospital cannot enjoy the same tax treatment as a public one, which is really unfair," said the manager.

Song said that the reform should be carried out step by step and the government is working hard to settle potential problems before approving the policy.

In early August, 2004, China Hospital Property Rights System Reform and Hospital Managing Level Stake holding Forum is expected to be held in Beijing.

(China Daily August 3, 2004)