China is to allow foreign investors to wholly own hospitals in seven cities and provinces, further opening up the country's fast-growing private hospital sector.

Beijing, Tianjin and Shanghai and the provinces of Jiangsu, Fujian, Guangdong and Hainan will take part in a pilot test that was launched in July, the Ministry of Commerce said on Wednesday.

The private healthcare sector is a magnet for investors, with the number of private hospitals rising fast in the past decade as Beijing looks to take the pressure off its state-run system.

China's healthcare spending is set to reach $1 trillion by 2020, according to global management consulting firm McKinsey & Co.

Beijing has been slowly opening the door to overseas money, previously allowing overseas investors to own 70 percent stakes in hospital joint ventures. Full ownership had been allowed in areas including Hong Kong, Macao and Taiwan.

The attraction is clear. There were 11,300 private hospitals in China last year, compared with just 3,200 in 2005, according to a Deutsche Bank report in June. It added that a further 8,000 public hospitals are likely to be privatized in the next five to 10 years.

Approval for foreign-owned hospitals will be overseen by provincial governments, the Ministry of Commerce said, adding that only investors from Macao, Taiwan and Hong Kong can practice traditional Chinese medicine.

The ministry's announcement did not include any requirements for a minimum level of foreign investment.

Guo Wei, general manager of the healthcare branch at HCR, a market research company, said most Sino-foreign joint venture hospitals in China are specialized hospitals mainly targeting high-end clients.

Guo said it is highly possible that foreign capital will continue to be invested in specialized hospitals. "Medical talent is limited in China. It's difficult to find enough doctors specialized in different medical fields to establish a general hospital," he said.

Dwight W. Clark, founder of the US-Sino HeartCare Center, said it is still better for foreign investors to establish hospitals with Chinese companies, as there are many rules and regulations in China that foreigners may be unaware of.

Bruce Liu, an expert on the healthcare industry, said: "This is a step in the right direction. The significance goes beyond merely attracting foreign investment though, as we would expect to see a greater inflow of global expertise and talent in hospital management."

Hou Liqiang and Yao Jing contributed to this story

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