On October 8, 2022, the State Council adopted and promulgated two provisions in regulations relating to foreign investment in travel agencies and non-profit retirement facilities in Shanghai, Tianjin, Hainan, and Chongqing, which came into effect immediately that day.

The adjustments, as a pilot project, will be effective until April 8, 2024, under which, for the very first time, foreign-invested travel agencies will be allowed to engage in international tourism and provide services to Chinese mainland citizens, and, secondly, access to non-profit nursing homes will be relaxed.

The same adjustments to regulations have previously been made by the State Council in Beijing in early 2019. Such rulings indicate that the adjustment, although temporary, will act as a pilot program, which could be rolled out to more provinces or extended beyond the initial pilot period.

How much will this help foreign-invested travel agencies?

Previously, foreign-invested travel agencies were not allowed to operate a business for Chinese mainland residents to travel overseas, including traveling to Hong Kong, Macao and Taiwan, unless otherwise stipulated by the State Council or based on related free trade agreements.

The temporary amendment will enable foreign-invested enterprises in Shanghai and Chongqing to provide travel services to Chinese citizens outside of China for the first time, including Hong Kong and Macao, but excluding Taiwan.

In general, the proportion of foreign-invested travel agencies in China is limited. According to the statistics of the Ministry of Culture and Tourism, as of December 31, 2021, the tourism business revenue of foreign-invested travel agencies in China in 2021 amounted to RMB1.236 billion, accounting for 0.84% of the total number of travel agencies in China.

Tourism insiders believe that the new interim amendment provides an exciting opportunity for foreign-invested travel agencies based in Shanghai and Chongqing. There is, however, a considerable hurdle for these companies in the immediate short term. The current COVID-19 restrictions imposed upon all visitors entering China have almost entirely brought outbound Chinese tourism to a virtual standstill. According to the published data, there were over 150 million travelers from the Chinese mainland in 2019, such number suddenly dropped to just over 23 million in 2020, with several industry experts estimated that it further decreased to 9 million in 2021 and will continue its decline in 2022. However, although outbound tourism is still suspended, China’s restrictions for inbound travelers, such as quarantine requirements, have been loosened in the last few months and may continue to be shortened in 2023, such as the recent lifting of hotel quarantine requirements for inbound travelers to Hong Kong.

On the one hand, this adjustment is a good opportunity for foreign companies engaged in niche tourism, such kinds of companies provide high-end tourism or special theme tourism. Most of the destinations for such Chinese tourists are in less popular countries in Africa, South America, etc. Previously, due to policy restrictions, the domestic office of such foreign companies only helped deal with clerical work. According to the new adjustment, if such niche tourism can establish itself directly in China, it will be easier to establish direct contact with domestic customers.

Moreover, this regulation increases the competition of domestic tourism market players, it also increases the chances for cooperation between domestic and foreign tourism. Foreign-invested travel agencies possess rich overseas tourism resources, and their mature business models can be used for reference. The adjustment will help further promote the advancing opening-up of domestic tourism.

How much will this help Non-profit retirement facilities?

According to the 2020 census data, the number of people aged 65 and above in China reached 191 million, accounting for 13.5 percent of the total population in China, and the trend is continuing to increase. A growing body of evidence suggests that the biggest demographic problem China is facing now is the aging population. In recent years, the authorities tend to pay close attention to elderly care issues, have promulgated several supporting policies, which will create new challenges and opportunities for foreign-invested nursing homes.

Previously, due to restrictions on foreigners participating in private non-profits, they have been prohibited from setting up non-profit care homes. This temporary adjustment, therefore, works to further open up new operational models for foreigners in China and may help to provide more options for individuals and families.

Foreign investors are currently allowed, and even encouraged, to invest in for-profit elderly care homes. According to reliable data sources, as of December 31, 2020, at least 40 companies from 11 countries have entered the Chinese pension market, spanning 17 provinces, and 44 projects have been completed. Obviously, with the encouragement of preferential policies, there will be more foreign-invested elderly care enterprises entering China soon.

Due to the traditional concept of elderly care and economic constraints, only a small number of elderly people in China can afford to live in for-profit nursing homes. Therefore, non-profit nursing homes have become an important supplementary means, and enjoy more preferential policies. The following are only examples of some of the preferential policies:

1. Non-profit care homes benefit from certain preferential tax policies, such as reductions or exemptions to corporate income tax, administrative charges, real estate tax, and urban land-use tax.

2. The prices of electricity, water, gas and heat consumed by elderly care institutions will be implemented by the same prices of living expenses for residents.

3. Local governments may grant financial subsidies to non-profit elderly care institutions in the form of investment subsidies, loans with discounted interest, operating subsidies or service purchases.

Industry insiders believe that the relaxation of admission of foreign donations to private non-enterprise units of non-profit elderly care institutions in Tianjin, Hainan and Chongqing also indicates that the elderly care industry in China is entering a new stage.

Conclusion

These two interim adjustments will accelerate the development of China's travel agency businesses and pension industry, and foreign investors intending to participate in the above-mentioned two industries of China will be able to compete with their Chinese counterparts in a fairer market than before.