Private capital will be allowed for the first time to tap medical service industry in China in a ground breaking reform that could chip away at state monopoly, according to a document released by the State Council today.

Under the new rules, entities including companies, charity organizations, foundations, and commercial insurers are encouraged to invest into the healthcare industry in various forms like funding or building new entities, participating in restructuring existing entities or using trusteeship.

"The reform covers not only the pharmaceuticals in traditional reforms but, indeed, it expands into both the upstream and downstream of the industry," Professor Liu Guo'en of Guanghua School of Management, Peking University, told Caijing.

"Leverage strength through the whole industry chain, promote reforms with industry policies, and eventually lead to the breakdown of monopoly," explained the professor, who was involved in preliminary study of the policy.

The central government will give strong support for the establishment of non-profitable medical institutions funded by social capital, according to the document.

In addition, it will push for greater market access to foreign pharmaceuticals, the cabinet document said, with a pilot program allowing wholly foreign-owned companies operating in China likely to be extended gradually.

"The opening-up to private capital in healthcare industry in the policy change is huge," said an official with the National Development and Reform Commission, the top economic planner.

The official described the new policy feature as "fei jin ji ru", which means "all areas, unless legally restricted, shall be open to all social capital while all areas, as long as with free access to local capital, shall be open to foreign capital."

That, compared with a 2010 similar cabinet document, is obviously a step forward towards policy transparency. Private companies found themselves foiled, facing "bo li men" or literally "glass doors" which refers to various invisible barriers when competing with state-backed players, when they were sharpening their claws with glee in 2010 for the entry of pharmaceuticals.

It is still hard to change the monopoly positions of state-backed hospitals…in the long run, for a variety of reasons," Professor Liu told Caijing, "It demands the resolution of many systematic problems. [However],the State Council's document is well targeted to break the barriers for private capital, or the so-called 'glass doors'."

The State Council has explicitly demanded local government officials to cancel "unreasonable regulations", and quicken their pace in creating a level playing field in policies. Favorable policies will be given to specific industries relating to pharmaceuticals, the document said.

Full report in Chinese, by Caijing reporter Li Hanwen:  http://industry.caijing.com.cn/2013-10-14/113412047.html