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No Silver Bullet: Tapping China’s Elder-Care Segment

by LiXiaoshu

October 16, 2012

Thanks to the changing population demographics in China, the aging market has become a huge business opportunity. But tapping it is far from easy

Liu Wen, a grey-haired 82-year-old, draws himself up from a deep Chinese-style sofa and shuffles to the door to answer the doorbell. It’s lunchtime at the Yanda International Health City, and Liu and his wife are among the multitude of seniors getting their meals delivered-there’s steamed bread, fried fish and pumpkin on the menu today.

Attracted by this kind of service Liu, a retired civil servant, moved here from Beijing which is a two-hour drive away. The couple pays RMB 7,600 a month (excluding utilities) for a 70-square meter apartment at Yanda.

“The rent is twice what you’d pay for an apartment of a similar size in Beijing’s suburbs,” says Liu. “Many people our age can’t afford to stay here, but the price is worth it for the medical care you get.” Liu’s wife is paralyzed and she needs constant medical attention. With doctors, nursing attendants and dieticians on duty 24/7, Yanda seemed like a good fit for the couple. Beyond the bare basics, there are a few frills as well, such as a hot spring pool and a library.

Yanda, which opened in late 2010 as a high-end medical and nursing facility with capacity for 12,000 seniors, appears a perfect solution for many elderly people like the Lius, whose two sons are working in Beijing, both unable to give the time or care required by their paralyzed mother.

End of the Demographic Dividend

There is another reason why senior-focused products and services-such as Yanda’s retirement housing-are starting to sprout across China. These services are driven largely by China’s population trends, which have been shaped by the country’s one-child policy. The very high proportion of working age citizens which delivered China a ‘demographic dividend’-fast economic growth driven by a huge working population-will end as a large proportion of its workforce moves toward retirement, says Cai Fang, director of the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences.

The tide is slowly turning. According to statistics from the Ministry of Civil Affairs, in 2009 there were 167 million ‘over-60s’, about an eighth of the population. And the most recent government census found that around 185 million Chinese were over 60 years old in 2011. By 2050 the number of ‘over-60s’ will swell to 480 million, while the number of people in the “working-age” will have fallen in comparison, according to the census. The writing is on the wall. As Robert Wiest, head of China operations at Swiss Re, the world’s second-largest reinsurer, commented in a company white paper published on April 24, “China by 2050 will become the most ‘aged’ among the emerging BRIC countries.”

In today’s China, the pressures on the one-child generation are obvious. In what is commonly known as the ‘4-2-1 phenomenon’, the responsibility of caring for the elderly-the parents and two sets of grandparents-falls upon the single child who may not have the time or the resources to bear this burden. As Fung Global Institute Senior Fellow and Harvard professor Arthur Kleinman and fellow Harvard professor Hongtu Chen point out in an article titled ‘Looking after the Elderly-Asia’s Next Big Challenge’, “…it is estimated that the elderly-support ratio is projected to decline drastically (in China). Right now, for every elderly person (aged 65 and above) there are nine working-age adults (ages 15 to 64); but by 2050, this ratio will be one elderly person per 2.5 working age adults.”

Finding out What Works

One would think that there would be many takers for a facility like Yanda. Apparently not. “We haven’t sold as many residences as we were expecting,” explains Zhou Baiyun, deputy director of marketing.

When it launched the project in 2010, Yanda wanted to “seize the moment” and get the first-mover advantage. The company spent $2 billion in building the complex. “We were a bit too early to test the water,” Zhou says in hindsight. “The apartments are not being filled up as fast as we expected.” Yanda reported RMB 40 million in revenue in 2011 and expects that figure to rise to RMB 200 million in 2012, according to Zhou. But despite the seemingly good growth figures, Zhou is reserved about future earnings. “It will be a long time [before we make back our investment],” he says.

A reason for underperformance is the reluctance among Chinese seniors to spend. Says Zhou, “Chinese seniors are much thriftier than their Western and East Asia peers…they are less willing to pay for their sunset years than their children may eventually be.” While China is ageing, it’s not clear that its elderly are willing or able to pay for elderly care. Only 11.3% of 19,986 seniors polled nationwide by the China Research Centre on Ageing said they’d prefer spending their twilight years in nursing homes. The average maximum that respondents would be willing to pay according to the poll, is RMB 1,016-hardly economical for ventures like Yanda.

Other developers have been finding out the hard way about what fits the current China seniors’ market, among them Greentown China Holdings, which lost several million on its Greentown Yi Le Academy, a nationwide chain offering recreational programs for the elderly, such as singing, painting, and Chinese calligraphy. Feng Yufeng, vice general manager at Greentown, explained that none of the 17 Yi Le academies has yet turned a profit, with only 1,500 seniors so far signing on for courses since January 2011.

Greentown has had bad luck, too, with its retiree-focused Greentown Blue Patio, a premium category retirement community for the aged, in Hangzhou with only 10 out of 86 of the high-end apartments sold by late July. “Maybe it’s just the wrong time, wrong place and wrong people,” says Feng. “It takes time to figure out a path that really works in China.” He says the lesson for Greentown and others targeting the retirees market is simple: “Test the market with small projects that are niche, customer-centric and scalable.”

A Better Route to Success?

That appears to be precisely the approach taken by a more successful venture, Singapore-controlled Pinetree Senior Care Services, which reported a 55% year-on-year growth in revenues in 2011. Set up in 2009, the firm’s 500 nurses provide in-home care to 20,000 seniors. Pinetree CEO Ninie Wang explains how the firm’s success is the result of lengthy market research into China’s elderly market.

Wang says that Pinetree had originally intended to set up care centers for seniors around China but abandoned the idea as “barely feasible” after three years of research. “It took three years to understand that Chinese old people prefer to stay at home rather than going to a care center in the Western sense, even if they’re seriously ill.”

Pinetree allows customers to choose from hourly rates between RMB 100 and RMB 260 depending on the experience of nurses, who are dispatched from 14 service units across Beijing. Customers typically spend between RMB 100 and RMB 800 per visit, explains Wang.
Having service centers in major residential areas across the city ensures efficiencies: nurses’ travel time to patient’s homes is capped at 15 minutes. Pinetree nurses are encouraged to walk or use bicycles and public transport. “Scheduling of staff and efficiency are key to profitability,” explains Wang. “Once you cut down travel time, nurses can visit more customers.”

Success in Beijing has encouraged Wang to go national: Pinetree will open 1,000 franchises and hire 40,000 nurses nationally by 2015 to achieve a client base of five million patients.

Another success story, also in Beijing, is the Cun Cao Chu Hui Home for the Aged that offers round-the-clock nursing care to disabled elders. The facility in Beijing’s Chaoyang District broke even after seven months of opening with a monthly turnover of RMB 500,000 on 100 beds.

Company CEO Wang Xiaolong credits the firm’s success to research and “sustainable human resource strategy”-competitive pay, a clear system of training and career advancement and comfortable accommodation for employees to “encourage people into the sector”. Wang also narrowed the company’s target group from all seniors to disabled seniors.

Policy Boost

Investors may be well advised to wait for government policy. China’s Ministry of Civil Affairs has encouraged private capital in senior services with taxation policies and land provision since 2007, but “it could take a couple of years before we see subsidies paid for elderly care,” says Cun Cao Chun Hui’s Wang Xiaolong.

Struggling to deal with the demographic shift, the Chinese government is currently mulling over its senior rights protection draft law which will guarantee, in theory, that most of its elderly population should grow old at home and have sufficient care services, while public and private retirement homes are supposed to fill the gap when families aren’t available or capable to care for the elderly.

China’s local governments are also required to boost spending on service sectors for seniors. “Local governments are much quicker to give the green light for them,” says Zhu Fengbo, chief executive of Beijing Sun Cities Group, which develops retirement homes. Zhu signed three contracts to cooperate with second-and third-tier city governments to develop senior projects in the first six months of 2012. “Developing provincial and national lobbying strategies will be critical, as will educating consumers and private investors to understand the public-private dichotomy to ensure that interests on both sides are met.”

Policy reform to encourage private sector participation will be vital for investors but they’ll be advised not to dive in head first without understanding this evolving market China’s seniors are unique in their lifestyle choices and spending habits. Only companies that can cater to them will succeed.

Niche Openings

China’s demographic transformation has generated a whole new raft of possibilities for makers of medical devices and insurance companies. Kang Fu Zhi Jia, a medical device chain, has 86 outlets across the nation. “Angel capital is very eager to invest into the medical device sector, especially professional hospital beds which are in strong demand,” founder Bai Yu says. Statistics from the General Office of China’s State Council show that the country only had 3.15 million senior nursing beds by the end of 2011, enough to cater to 1.77% of its over 60-year-old population, compared with 10% in developed countries like the US.

Christopher Kaye, partner and managing director in the Boston Consulting Group’s (BCG) Hong Kong office, expects 5% to 10% average growth in the retirement insurance sector and up to 40% increase over the next three years, provided the government encourages private participation in pension and healthcare plans.

Taikang Life Insurance Corp, China’s fifth-largest insurer by premium value, is coming out with offerings for China’s wealthier seniors. In April, Taikang launched a new commercial pension with a base premium at RMB 2 million that enables insurants to not only receive their annual fund, but also live in a senior community which Taikang is building in suburban Beijing with no additional payments required. Taikang said a total of 50 such pension policies were sold in the first 30 days since the product’s debut. “The model is innovative and could boost the number of life insurance products while also providing capital flow to the senior housing segment… It’s equivalent to issuing 30-50 year corporate bonds,” Taikang’s CEO Chen Dongsheng said to Xinhua News Agency.

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