Municipal government officials in Wenzhou, Zhejiang province, have developed new plans which could establish the city as the private medical capital of China.

The city - long-renowned for its large population of entrepreneurs - has received opinions from central government on a draft plan that could call for offering incentive policies on land use, taxation and favorable payback conditions for investors.

A local Wenzhou government source confirmed to China Daily: "The central government has provided suggestions to us, and we are doing revisions," but declined to disclose further details.

According to a report appearing in 21st Century Business Herald on Monday, the plan's incentives could make hospital investors exempt from property tax and land use fees during the first three-years of operation.

According to officials, the municipal government is proposing that it provide funds of at least 20 million yuan ($3.14 million) annually to support private hospitals, and interest-free loans will be offered for larger projects.

In addition, for nonprofit private hospitals, the government will consider giving dividends to investors, the draft plan says.

"If these plans are realized, that could be a breakthrough for the private medical sector," said Liu Guo'en, a director with the China Center for Health Economic Research, which is affiliated to Peking University.

Chinese and international government regulations suggest that all revenue from nonprofit medical institutes should be put back into further hospital operations, and operators should not get dividends from profit.

However, to stimulate private investment, the draft plan suggests that after deducting annual operational costs, including those for facility improvements, technological renovations and talent training, a part of any remaining profit could be offered as a bonus to operators.

"The plan is really ambitious. But I am not sure if the central government will approve the dividend policy proposal," added Liu.

Wenzhou is well-known as a huge source of private capital, but due to the recent international economic slowdown, investment projects have been scarce.

However Zhao Xiao, a professor at the University of Science and Technology in Beijing, said the medical sector is favorably viewed "as a long-term and stable investment avenue for investors with strong capital strength".

According to the Ministry of Health, at the end of October China had 21,979 hospitals, an increase of 941 from the previous year. However, the number of State-owned hospitals fell by 311.

"About a third of medical institutions in China are privately owned, but they only provide a tenth of the medical services," added Hong Mi, vice-director of the National Institute of Hospital Administration, which is affiliated to the health ministry.

He added that the central government's goal is to have private hospitals provide 20 percent of all medical services in China by 2015.

But he said putting money into hospitals should be viewed as a long-term investment and investors should have the strength and patience necessary to shoulder five years of losses before break even.

Local governments in places such as Beijing, Shenzhen and Qinghai province have announced plans to issue policies aimed at encouraging the development of private medical hospitals.

Preferential policies to be suggested have included streamlined administration procedures as well as similar treatment as public hospitals on land use and taxation.

Contact the writers at liujie@chinadaily.com.cn and yuran@chinadaily.com.cn