All hospitals affiliated to China’s State-owned enterprises will be divested from their giant owners via sales to local governments, closure, resource integration or restructuring with social capital by the end of 2018, according to the nation’s top regulator for State assets.

Because many SOEs are facing issues such as restoring their earning ability through high-value added products and casting off outdated production capacity, the government started to cut the affiliation of more than 7,000 hospitals to SOEs since 2002.

Last year, China had over 2,000 remaining hospitals which are financially dependent on SOEs, including 290 large ones.

Wu Tongxing, deputy director of the Bureau of Enterprise Reform at the State-owned Assets Supervision and Administration Commission, said work to sever the links between SOEs and around 90 percent of their affiliated hospitals and health centers had taken place in the first 10 months of this year.

The majority of SOE hospitals and medical centers were created during the era of the centrally planned economy, especially in the mining, oil, steel, automobile and infrastructure construction sectors, which have a large number of employees.

In addition to hospitals, some SOEs such as Shenyang Aircraft Corp, a part of the Aviation Industry Corp of China, and Ansteel Group used to manage their own schools, beverage factories, commercial properties, and even police and power stations.

The SOE hospitals accounted for more than half of China’s public hospital resources between 2000 and 2002. However, their unique administrative systems and insufficient financial support from parent companies have limited their services, as well as their ability to acquire new medical equipment and recruit medical staff.

Wu said that around one-fourth of the more than 2,000 remaining SOE-affiliated hospitals will transfer their ownership to local governments, and one-third are scheduled to close for renovation or converted into outpatient clinics within the SOEs. The remainder will be restructured with social capital before the end of 2018.

Both central and locally administered SOEs allocated over 10 billion yuan ($1.45 billion) in subsidies to the more than 2,000 remaining SOE hospitals in 2017, according to the SASAC.

To ensure that all the SOE hospitals can be smoothly divested from SOEs, the commission has appointed six companies, including China Chengtong Holdings Group Corp, China National Pharmaceutical Group Corp and China Resources CR Healthcare Co, to temporarily manage SOE hospitals that cannot complete the ownership reform or transition on schedule.

Li Jin, chief researcher at the China Enterprise Research Institute, said it is not hard for local governments to take over SOE hospitals to restructure them and form bigger entities to compete with established private and foreign rivals in the healthcare sector.

“It will be fierce for private companies and local governments to bid for profitable SOE hospitals supported by high-quality doctors and facilities,” he said. “Still, it would be fairly troublesome for SOEs to sell hospitals with debt, management issues and rural locations.”

For many SOE hospital employees, their first choice is to be part of the government-sponsored hospital system, as they can enjoy preferential policies, training, certain subsidies and social welfare, said Zhou Lisha, a researcher at SASAC’s research institute.